Is Tax Evasion a Legal Option for those who don’t like taxes?

A “Tax” is a compulsory payment imposed or levied upon a taxpayer by their state, federal, or local governments, against their income, goods, or services. This compulsory payment is resented by some taxpayers to the degree, which they resort to tax evasion. The word tax evasion is often misunderstood as tax fraud or penalty, but tax evasion is a totally different term, having a different role in the scheme of “all things taxed”. Every resident of the United States, having an income or gain by any means owes a certain tax liability to its Tax Revenue Offices, and being a compulsory payment, some resent the very feeling of paying taxes as an over-reach by government. This is one reason why thousands of Americans every year face the harsh reality of not paying taxes, by the Internal Revenue Service, when they are caught.

What is tax evasion? How is it different from tax avoidance and tax fraud?

Tax evasion is actually a subset of tax fraud which usually entails a deliberate act of misrepresentation of taxable income to the IRS or Internal Revenue Service. It refers to any attempt by which a taxpayer avoids payment of taxes, usually followed by illegal means. Tax evasion should never be confused with tax avoidance, because the latter can be a legal way of avoiding taxes by means of legal deductions and making donations to several allowed institutions.
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Tax fraud can involve cases that are civil and criminal in nature, while tax evasion usually includes cases which are criminal in nature.

Types of tax evasion

There are a number of ways in which an individual can evade his/her tax, some of the most common ones are enlisted below:

  • Reporting less than actual income or failing to report any cash income.
  • Claiming false deductions or showing inflated donations to charitable institutions in order to avoid tax payments.
  • Filing an intentionally deceptive and incorrect tax return or deceiving the IRS with misleading details.
  • Omitting a property or not understating the value of property owned, etc.

Why tax evasion is not a short term or long term option for those who don’t like taxes?

Taxes are a legal payment that every American Resident must pay to the government- both federal and state. Taxes are usually levied on the income of an individual which can be in the form of a salary, capital gains or income from any other source, but the idea of giving up a considerable portion of their income to government, disturbs many Taxpayers. People feel that the government is actually exploiting their fundamental rights by taking away a part of their hard-earned money, and as a result they evade taxes.

However, tax evasion is never a short or long term option for the people who don’t like  paying taxes, because taxes are a rightful income you owe the government. Our government spends tax money making sure every civil service you and your family enjoy are available to you; such as government hospitals, schools, roads, dams, and bridges, as well as streets and government buildings. Thus, your taxes are the government’s rightful claims and therefore, you do not have the right to keep tax dollars you owe the government. Indulging in tax evasion would mean that you are inviting a lot of trouble in your life in  the form of several penalties and even prosecution. There is a paper trail for everything you do, and the government will eventually find you, if you evade taxes. So, I have one bit of advice for you, “pay your taxes-be honest about income”, otherwise tax evasion will eventually lead you to sever penalties and punishment.

What happens when you evade taxes?

A person suspected with tax evasion is first; interrogated by the Internal Revenue Service, and if proved guilty the suspect is immediately imposed with penalties. However in certain cases, the IRS may deploy The Central Investigation Division to collect further evidence. If an individual is found guilty, he may be imposed with the following penalties:

  • If a person is held guilty for cheating on taxes owed to the government, then his penalty may include a prison sentence of up to 5 years or a fine of up to $250,000 or both. In case of corporations, the fine may be up to $500,000.
  • Filing a wrong return; having misleading information where the motive of the suspect was to evade tax, in this case the penalty would be imprisonment of up to 3 years or fine of up to $250,000 or both. In case of corporations, this fine may go up to $500,000.
  • A penalty of 100% of the amount not paid by employers is to be paid by employers when they do not pay the required taxes to government agencies. In the case of businesses with employees, there are certain social security benefits that every employer needs to pay on his employees’ salary, and in case of failure to pay such tax, the employer will have to pay 100% of the amount withheld.
  • Non filing of the tax return also attracts certain penalties and thus a person held guilty may get 1 year imprisonment or $100,000 fine or both. The amount of fine is $200,000 in case of corporations.
  • Penalty for failure to file a timely tax return- If a tax payer who is required to file a tax return fails to do so within a stipulated time period then, he may be charged with a penalty. There will be a 5% penalty on the amount of tax unpaid per month until the return is made, but up to a maximum of 25%.
  • Penalty for failure to pay a timely tax- If a tax payer is unable to pay his taxes due by the return date then, he/she will have to pay a penalty of 0.5% of the amount of unpaid tax per month up to maximum of 25%.
  • Penalty for non-payment of stipulated dues- If a tax payer is unable to pay his taxes even after being notified about the same within a given time period then, he will have to pay interest on the amount withheld along with a penalty of 0.5% per month applied to the unpaid amount.

Prevent tax evasion under all circumstances

By now you all must’ve understood that tax evasion is a crime and the best way of staying away from all the penalties and fines imposed by IRS would be by following all taxation rules and laws. Make use of legal deductions and avoid as much tax as is legally permitted by the IRS. In case you will be late filing your return, ask for an extension from the IRS, clear your tax debts as soon as possible and always stay away from tax evasion. Live Rich Save Money, one honest tax filing at a time.
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Lois Center-Shabazz
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author of, Live Rich Save Money! Budget Diary
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