Taxes are stressful and often scary. The scary part is the fact that if you do your taxes wrong or fail to do them all together, you could face significant penalties.
In extreme cases, you see individuals going to prison for things like tax fraud and tax evasion. It’s important to understand the difference between tax fraud vs tax evasion and what each one means before you start doing your taxes.
Knowing these differences can help you to ensure that you’re not making any mistakes that could cost you jail time or money. In most cases, doing your best to complete taxes won’t cause any problems, but knowing where the line is drawn can be very important.
Let’s take a look.
Understanding Tax Fraud vs Tax Evasion
The first thing that you should note if you’re just an individual doing your taxes is that the IRS shouldn’t come after you with full force on a harmless mistake.
People make mistakes all of the time, especially when it comes to managing financial information and doing math. When you add the pressure of taxes to the equation, it’s understandable that you would make an error or two.
If you make an error and the IRS notices it, you might receive a letter that asks you to clear up the mistake. That might mean you have to pay a little more money, or you might have to send in some additional information to verify something.
In any case, the error should cause you too many issues if it was a mistake. If you do find yourself in some trouble, tax attorneys can assist both individuals and businesses with legal trouble having to do with taxes.
What Is Tax Fraud?
Tax fraud is the deliberate action of adjusting or manipulating your financial information to benefit from filing your taxes. You might move your business dealings around in an intentional way to save a lot of money.
You might also lie on your taxes to say that you made less money than you actually did, leading to a smaller tax bill. You might even fudge the numbers enough to send a lot of money your way.
If you do this and you’re audited, you can expect the IRS to come knocking on your door to demand answers. This is where you can get into legal trouble with tax fraud.
What Is Tax Evasion?
Tax evasion is any action taken to avoid paying or doing taxes. You might get prosecuted for tax evasion if you just fail to do your taxes for a long enough period of time.
Some people also set up foreign bank accounts or situate their money in such a way that it’s not immediately apparent to the IRS. Tax evasion can come in a number of ways, but it always involved avoiding the payment of taxes on the income that you’ve made.
Want to Learn More About Tax Fraud Penalties?
There’s a lot to learn about tax fraud vs tax evasion, especially if you run a business and have to manage your personal taxes. Things can get mixed up and messy quickly.
We’re here to help you get your finances in order so that you can stay in good standing with the IRS. Explore our site for more insight into taxes, finances, and more.