Not many individuals or business owners in Maryland relish the topic of taxes. The often confusing, frequently stressful nature of the subject can sometimes lead to confusion when it comes to key terms and their true meanings. However, in order to stay on the right side of the law at all times, it is critical for everyone to grasp the difference between tax avoidance and tax evasion.
Steering clear of legal jeopardy at tax time
It is not uncommon to have a certain amount of wariness when it comes to the power of the Internal Revenue Service to make life difficult — or expensive — for those who run afoul of its rules. That said, not everything a taxpayer does when it comes to limiting the financial burden faced each year results in potential legal liability.
Americans have every right to pursue lawful and legitimate means of reducing their tax liability, techniques commonly referred to as “tax avoidance.” Such strategies can include things such as:
- Utilizing all applicable deductions
- Claiming all available tax credits
- Making contributions to employee retirement plans
- Offsetting income with capital losses
In this way, it is often possible for taxpayers to significantly reduce the amount owed to the federal government in a given year but do so in an entirely above-board and legally authorized way.
When avoidance becomes evasion
While tax avoidance is perfectly permissible, and indeed wise, the act of using illegal methods of avoiding the payment of taxes rightly incurred is an extremely risky course of conduct that can yield substantial criminal liability. Whether done through misrepresentation of income amounts, using inflated or illegitimate deductions, secreting money away in foreign accounts, or some other mode of deception, those engaged in such activity may find themselves subject to hefty fines, terms of incarceration, or perhaps even both, if convicted.
There is never anything wrong with using the tax code to your advantage so as not to pay a dollar more than is owed, but it is crucial to appreciate precisely where the line is drawn between savvy tax planning and criminal evasion. Doing so is the best way to avoid what could otherwise be costly and protracted legal difficulties.