Tax Evasion is Not an Option. This is the Time to Pay All Your Taxes
What is tax evasion?
Tax evasion is the illegal non-payment or underpayment of tax through not reporting all or some of your income or taking unallowed deductions and credits. It is literally stealing money from the government, and if caught, it is punishable by law. Tax evasion is a felony that can leave you with a hefty fine of up to $250,000 ($500,000 for corporations), plus the cost of prosecution. You can also go to prison for up to five years.
Taxpayers choose to go this route thinking that it saves them money, but instead, it places them on a ticking time bomb that they won’t know when it will exp[lode. In other cases, tax professionals lie to their clients and lead them to commit tax evasion through various means.
For example, the Federal Court recently shut down a Michigan Tax Preparer’s business after she was found guilty of reporting false business income and expenses and claimed excessive deductions, resulting in undeserved refunds. She and her business also impermissibly lowered some of her customers’ tax liabilities. She did this by falsely claiming head of household status for taxpayers not entitled to claim it. In total, her fraudulent tax returns cost the United States hundreds of thousands of dollars in tax revenue.
Ways to evade taxes
Tax evasion is not the same as tax avoidance. Tax evasion is illegally avoiding paying taxes, and tax avoidance entails using different legal tax strategies to reduce taxable income and pay little to no taxes.
Below are the ways that people use to evade taxes.
- Sending false records to the tax preparer, for example, hiding another bank account
- Underreporting income
- Hiding interest on saved money and other investments
- Falsely assigning your income to someone else
- Deliberately underpaying your taxes
Deliberately doing any of the above will not go unpunished. The IRS has the means to catch any wrongdoing by the taxpayers. Recently, a man from North Carolina was indicted for tax evasion. He earned more than $750,000 between 2015 and 2020, but he did not file any federal income tax returns for those years. This man is alleged to have submitted IRS Forms W-4 falsely stating he was exempt from federal income tax withholding. As a result of his lie, his employers withheld little to no taxes.
So, he faces six counts of tax evasion and six counts of willfully failing to file a tax return. The same could happen to any taxpayer who deliberately evades paying taxes.
Why are many taxpayers vulnerable?
As a taxpayer in 2022, I want you to understand that you are vulnerable to indictments. This is because the IRS is increasingly prioritizing detecting fraud, tax evasion, and protecting the tax system. Remember that President Biden’s plans are all centered on expanding government expenditure. This can only be funded by taxpayers’ money. And to ensure that this money is raised, his administration is providing resources to the IRS so that it hires many analysts to analyze your tax returns.
This message must also not be taken lightly, especially by side hustlers. I understand that many Americans earn side income, which is excellent. But it will even be greater for you if you claim all your income on your tax return. Income tax fraud must be avoided by all means – report all your side hustle income. According to the Internal Revenue Code, gross income is any income that you have derived from any source. Therefore, the money you earn from your side gig is 100% taxable. Failure to declare it is tax evasion.
Other groups of people targeted by the IRS are online traders and cryptocurrency holders. If you held cryptocurrency or bought anything using it in 2021, capture all this information on your tax return. The IRS needs to see you being as transparent as possible on your federal tax return.
Finally, if you are not sure of something, do not risk sending wrong information to the IRS. It is in your best interest to request an extension to file. This will give you time to get your issues in order; for example, ascertain your accurate earned income in 2021 if you have more than one stream of income. Please note that an extension to file is not an extension to pay. Therefore, make sure that you pay your estimated taxes owed by the April deadline. If there is anything you need, especially the help of a tax professional, to prepare your tax return, contact us now and book your first quick tax chat with us and have your questions answered.
People have also asked the following.
- What are examples of tax evasion?
Examples of tax evasion include hiding all or some of your income or claiming excess deductions and tax credits, including those you do not qualify for.
- What happens if you do tax evasion?
Tax evasion is a felony. If you commit it, you will be investigated and prosecuted. If found guilty, you will pay fines of up to $250,000 ($500,000 for corporations), plus the cost of prosecution, or go to prison for up to 5 years.
- What is tax evasion?
Tax evasion is purposely and illegally avoiding paying taxes. Some people claim that they may evade paying taxes by mistake, for example, making a math error that results in you submitting the wrong information about your income. However, the IRS still investigates whether the omission was deliberate or intended.
- How can I avoid paying taxes legally?
To avoid paying taxes legally, use the tax code to plan your taxes and formulate tax strategies that can legally reduce your taxable income and qualify you for some more tax credits.
- What are the causes of tax evasion?
Causes of tax evasion vary from the country’s tax system to the taxpayers’ attitude. Some countries charge too much on taxes with little tax incentives that citizens can take advantage of. In such cases, many taxpayers try as much as possible to avoid paying half their income to the taxman. But some taxpayers are generally reluctant to pay taxes and will illegally try to hide their income from the taxman even if the government has put in place several tax incentives.
