What is Tax Evasion?

Paying taxes is not much fun for anyone. There is a legal way to minimize the amount you pay as well as an illegal way. This raises the question of what is tax evasion?

The concept of tax in the United States is based on a pretty simply statement. If you earned it, you have to pay tax on it unless there is some provision of the tax code that allows you a discount. The mortgage interest tax deduction would be an example of such a provision. 

This overall view means that it does not matter how you earned the money or even where. If you sold illegal drugs, technically you are supposed to pay taxes on the money produced. If you live and work in Japan full time, you still have to pay US taxes even though you never step foot in the United States. Obviously, there is a tax provision that minimizes this tax or nobody would work outside the US, but you get my point.

The concept of using every legal means at your disposal to minimize your tax liability is known as “tax avoidance.” What is tax evasion? It is when you step over the line and start using illegal methods for minimizing your tax liability. Let’s consider an example. 

Let’s say I run a car detailing business. I do all the work myself. Many of my clients pay me in cash. At the end of the year, I am supposed to total up all of my revenues including the cash, report it to the IRS and pay the appropriate taxes. If I don’t report all or part of the cash, then I am illegally pursuing a tax evasion scheme.

Tax evasion carries some stiff penalties. Remember, the IRS is matching your reported income to your bank account balances and other informational reports it receives. This makes it fairly easy for them to nail you. Sitting in jail with some very rough people because you cheated on your taxes is a pretty stupid thing to do, so don’t. 

source : http://www.businesstaxrecovery.com