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Tax evasion and tax avoidance are not the same

On Behalf of | Nov 23, 2022 | Criminal Defense

No one wants to face accusations of fraudulent tax filings. Besides dealing with an audit, the taxpayer could even be criminal charges. The charges may center on felony tax evasion. Therefore, many taxpayers might not take available deductions due to nervousness about investigations. North Dakota taxpayers may benefit from understanding the difference between tax evasion and legal tax avoidance.

Legal tax reductions

Tax avoidance might sound improper, but the term refers to a taxpayer taking legal deductions. For example, many people work from home, and home office deductions could be available. However, they must be entirely honest with their claims on the appropriate forms, or they could face accusations of filing false tax returns. Civil penalties and monetary fines may follow. In egregious cases, the IRS could pursue criminal charges based on filing a false tax return and attempts to evade taxes.

Ultimately, there are numerous legal deductions available to taxpayers. Giving money to charity or taking mortgage interest deductions may support legal tax avoidance options the government may even encourage.

Evading taxes

With tax evasion, a taxpayer might deliberately attempt to cheat the IRS out of money owed. Some may employ elaborate schemes, such as diverting income to another person’s name or depositing funds into hidden offshore accounts. More commonly, they may claim business deductions that were personal ones.

Others may avoid taxes by not filing a tax return for several years. Those who fell behind may wish to file returns as soon as possible or face the risk of having to mount a criminal defense strategy in federal court.

That’s not to say the IRS is always correct when investigating. When the IRS challenges a legal deduction, investigations might commence. Sometimes, they may suggest you earn more income than he did. Providing documented proof could counter the IRS’ claims.