Thursday, January 7, 2010

The Law and You: Tax Evasion versus Tax Avoidance

To the person on the street, tax avoidance and tax evasion are one and the same -- it means that you haven't paid the taxes you were supposed to. However, for a small section of the population and their criminal attorneys, the difference is enormous -- it possibly represents the difference between spending some years in jail, and going about your life as usual.
What is tax avoidance?
There are literally thousands of legal ways to avoid paying tax on some of your income. In some cases being able to avoid tax might depend on:
  • What you spent the income on; if it was for business purposes or a charitable donation, you avoid paying tax on that income -- but this is obviously legal
  • The country you derived the income from
  • Transferring assets to another jurisdiction
  • Changing the structure of legal entities
The term "tax mitigation" is sometimes used by criminal attorneys and legislators to avoid the negative connotation of the term "tax avoidance".
What is tax evasion?
The most typical ways that ordinary citizens evade paying tax which they are legally subject to, include:
  • Failing to report income -- being paid in cash
  • Claiming deductions which are not authorized, in the hope they will not be investigated
  • Claiming personal deductions as business expenses, or vice versa
  • Falsely claiming charitable contributions
  • Overestimating the value of property donated to charity
  • Underestimating the value of assets that have been received
Ordinary citizens can sometimes be caught up in tax evasion charges without any knowledge that they were engaging in unethical or illegal conduct -- this most often occurs when an accountant makes illegal deductions or underreports income or assets on the defendants behalf.
Of course, the question of intent factors enormously in the outcome of trials for tax evasion. It may not reduce the likelihood of getting a guilty verdict, but it has definite potential to reduce the sentence or penalty that is imposed. This is where expert Florida criminal lawyers are a necessity if you have been charged with tax evasion.

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