Strategic Federal And State Criminal Defense

The difference between tax evasion and tax avoidance

On Behalf of | Aug 5, 2022 | Federal Crimes |

The tax codes in the United States are complex and confusing, and it is not always easy to understand all of the factors that determine how much one will have to pay to the government. If you have ever done your own taxes, you know firsthand the intricacies and complications involved with completing even a relatively straightforward tax return. Even inadvertent mistakes on your return have the potential to lead to legal complications that could result in steep fines and penalties.  

There is a significant difference between unintentional mistakes on a tax return and tax evasion. There is also a difference between avoiding taxes through legal means, such as a deduction, and illegal ways to avoid paying some or all of one’s tax obligations. If you are under investigation for tax fraud, or you are already facing charges for this type of white-collar crime, you will benefit from understanding the difference between tax evasion and tax avoidance. 

What is tax avoidance? 

Tax avoidance is any legal means of structuring your affairs so that you owe the least amount of taxes possible. This is possible through deductions, but also through the application of tax credits or through investing funds in certain types of accounts that have tax advantages. These accounts include 401(k)s or IRAs. Tax avoidance is legal, as long you manage it appropriately. For example, taking deductions for which you are not actually eligible could result in severe penalties. 

What is tax evasion? 

Tax evasion involves lying about certain facts and hiding funds in order to avoid some or all of what one owes in taxes. This may include lying on a tax form so that it appears one has less income or liabilities in order to avoid payment. Evasion is also the intentional concealment of information from the IRS. If convicted of tax evasion, you could face the following penalties: 

  • Years behind bars 
  • Felony conviction on your permanent record 
  • Fines that could amount to as much as $250,000 

This does not include the other ways a conviction for tax evasion could affect your life, such as the loss of your personal reputation or even loss of job opportunities in California. It is critical to take your situation seriously, considering the possible defense options that may be available to you. An assessment of your case will help you understand how you can develop an appropriate, effective strategy by which you can confront the prosecution’s case.