Is it avoidance or evasion?

Like most in Charlotte, you understand that Uncle Sam is eventually going to get his own chunk of your earnings; the real question is whether that is going to happen every two weeks or once a year in April. While you might appreciate the need for taxes, that does not mean that you want to pay any more than you absolutely have to. There are plenty of methods through which you can save on paying taxes; your just need to know whether they classify as tax avoidance or tax evasion.

The Internal Revenue Service draws a strict distinction between the two. Tax avoidance refers to the steps you can take to minimize your tax liability, while tax evasion is any action you take to keep from paying taxes. The IRS recognizes your right to reduce the amount you have to pay in taxes through legitimate means (and even encourages it). Increasing your contributions to your retirement savings plan, putting money in health savings account to cover medical expenses, or deducting your non-reimbursable work expenses from your overall tax liability are all commonly accepted and endorsed tax avoidance methods.

Examples of tax evasion may include:

  • Understating your income
  • Omitting income sources
  • Embellishing your deductions
  • Claiming tax credits you do not qualify for

Every year, your employer sends out your W2s to help you in filing your taxes. What you may not know is that the IRS receives the same documentation. Any discrepancies between what it receives and what your put on your tax return could trigger scrutiny. If such discrepancies are the result of a legitimate error, you may be able to file an amended return in order to avoid any potential accusations of tax evasion.

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