No one in Mount Pleasant looks forward to paying taxes, yet most still do it dutifully. That said, no one ever wants to pay more than that which they owe. The trick, then, is understanding exactly what it is that needs to be paid. People often look for many ways to avoid having to pay taxes. One might think that any instance of avoiding paying taxes is a criminal offense, yet there are actually lawful ways to do. One simply needs to understand which strategies are tax avoidance, and which are tax evasion.
The Internal Revenue Service defines tax avoidance as actions taken to both lessen one’s tax liability and maximize their after-tax income. Examples of tax avoidance may include:
- Claiming tax credits offered by the IRS
- Listing deductions such as property tax, medical expenses and charitable contributions
- Deducting business expenses such as supply costs and travel mileage
- Using pre-tax dollars to fund retirement accounts
- Holding on to investments longer to lower capital gains taxes
Each of these tax strategies reduces the amount one owes in taxes and all are perfectly legal. In reality, there are many ways people can lessen their tax liability, yet few take advantage of them fully.
On the other hand, tax evasion is knowingly failing to pay taxes. The IRS recognizes that tax evasion cases must include an intent to defraud, which it clearly defines as “intentional wrongdoing with the specific purpose of evading a tax believed by the taxpayer to be owing.” Examples of tax evasion include simply not filing a tax return, or cases involving underground economy (money-making activities that people do not report). This can include self-employment income, tips or money made from the same of small property.