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What’s the Difference Between Tax Avoidance and Tax Evasion?


Business owners can take advantage of specific tax codes, allowing them to minimize their tax liabilities to the government. Using these methods, referred to as tax avoidance, the person can legitimately restructure their financial affairs and decrease income tax owed. However, tax laws are complex and ever-evolving, and it can be difficult to ensure the strategies used throughout the year comply with the tax code. Unlawful practices could result in tax evasion charges.

What’s Tax Avoidance and What’s Tax Evasion

Tax avoidance differs from tax evasion in that with the former, a business owner takes advantage of permissible deductions or credits to avoid taxes. These methods could include establishing tax deferral plans or putting money into a retirement account. Tax evasion, on the other hand, involves not reporting income or reporting less than what was actually earned for the year.

Tax laws are diverse, and a person could think they’re following the Internal Revenue Code, which is about 75,000 pages long, but may make a mistake in reporting. Errors such as this do not automatically result in a person being charged with tax evasion. Their actions must be willful and intentional to be considered illegal.

For example, say Ezra started an event planning business in 2012. Over the past 7 years, he took payments by electronic means and checks. To avoid paying taxes on April 15th each year, he reported only the income he received from customers who paid online. Because he filed his returns showing substantially less than he actually made, he could be charged with tax evasion.

Statutes Prohibiting Tax Evasion

Both state and federal laws prohibit a person from intentionally evading taxes. Under Wisconsin statutes 71.83(2)(a) and 71.83(2)(b), depending on a person’s specific actions, tax evasion could be charged as a misdemeanor or felony. A conviction could result in jail time and steep fines. At the federal level, this offense is charged as a felony and could be penalized by up to 5 years in prison and/or up to $100,000 in fines.

Discuss Your Case with the Law Offices of Christopher J. Cherella During a Free Consultation

Tax laws are diverse, and it can be difficult to know what constitutes criminal behavior when reporting income and expenses. Sometimes well-meaning people could be investigated for and charged with a white-collar crime such as tax evasion. If you’re facing accusations, reach out to our attorney today. We have over 25 years of experience, and we will work toward a favorable outcome in your case.

Speak with our attorney today by calling (414) 882-8382 or filling out an online contact form.

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