With the first month of 2020 coming to a close, the 2019 tax preparation season draws nearer. People at this time of year understandably take a good look at their finances and start evaluating their options for filing their tax returns by the April 15 deadline. Changes to the tax laws rolled out with the Tax Cuts and Jobs Act have materially altered many taxpayers’ long-time strategies, forcing them to find new ways to protect their earnings. As they do this, they should understand the sometimes fine line that separates tax avoidance and tax evasion.
As explained by NerdWallet, tax avoidance involves actions taken to increase a person’s post-tax income and reduce their income tax liability. Tax evasion, on the other hand, involves actions taken with the deliberate intent to avoid paying all or some of a person’s legitimate tax bill. It can be easier than many people think to make an innocent mistake that could make it look like they were trying to evade their tax responsibility.
If a person fails to provide a domestic worker with a W-2 and report any money paid to that person as wages to the Internal Revenue Service, the taxpayer might be in jeopardy of being accused of attempted tax evasion. This is just one common example that highlights how careful people need to be.
This information is not designed to provide legal advice but is instead meant to give people an idea of how legal tax reduction methods differ from activities that may lead a person to be accused of illegally evading their income tax responsibilities.