Rosenblum Schwartz & Fry
314-499-1424

Do you know the difference between tax evasion and tax avoidance?

If you are like the majority of people in St. Louis and across the nation, you are probably looking for a way to pay the least amount of federal income taxes as possible. There is nothing wrong with wanting to reduce your tax liability. However, the method you choose could land you in hot water with authorities. While there are perfectly legitimate and legal tax avoidance steps you can take, if you cross the line and commit tax evasion, you could face prison time.

To avoid finding yourself on the wrong side of the law, it is important to understand the difference between tax avoidance and tax evasion. Here are a few examples of each to help you determine if a tax position you plan to take is tax evasion.

Tax avoidance

The Internal Revenue Service (IRS) and state tax codes include plenty of ways that you can reduce your tax liability through various deductions and credits. When you use these correctly, you are engaging in tax avoidance. For instance, if your itemized deductions total more than the standard deduction, you can further reduce your tax liability.

You may be able to claim up to $10,000 in real estate and personal property taxes paid in the year, take a deduction for the mortgage interest you paid on your home or even claim an education credit for the tuition you paid for your oldest child to attend university. The amount and types of deductions or credit you claim are going to depend on the specifics of your particular situation.

Tax evasion

Tax evasion occurs when someone uses illegal methods to reduce or evade paying their taxes. For example, if the IRS determines you owe $20,000 in taxes and you hide assets in an attempt to convince the IRS you do not have the means to pay the tax due, this is tax evasion. Also, if you hide assets or income so as not to report it on your tax return, you have committed tax evasion.

Common examples of tax evasion include underreporting of income, falsely taking deductions, failure to file tax returns and purposely underpaying taxes. If you are prosecuted and found guilty of tax evasion, you could spend anywhere from a few months to several years in prison and end up owing up to $100,000 in fines.

If you are facing tax evasion charges, keep in mind that you still have rights and options. With a strong defense, you may be able to win the fight in court and avoid a criminal conviction.

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Rosenblum Schwartz & Fry

120 South Central Avenue
Suite 130
Saint Louis, MO 63105

Phone: 314-499-1424
Fax: 314-862-8050
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