Handling taxes can be pretty complicated, but it is extremely important that you understand what you can and what you can’t do. If you fail to do this, you are risking a charge of tax evasion – one of the most serious crimes that a person can face from the IRS. And you are convicted, not only can you face a felony charge, but large fines and prison time as well. Surely, you would want to avoid that, and on that note — in this article, we are going to talk about how that can be achieved.
Tax avoidance vs. Tax evasion
First things first – it’s very important to understand the difference between these two terms since even though they sound similar, they are very different. The professionals at https://www.mrod.law/ explain, not knowing your rights will not only make you pay more than you have to, but it can get you in legal trouble as well. In case that happens, it’s always better to seek help from an experienced attorney as this will not only give you peace of mind but can help you figure out how to deal with taxes later on. That being said, do your research!
So, What’s the Difference?
Tax evasion is ultimately an attempt to reduce your tax bills by deceit, subterfuge, or concealment which is, obviously, a crime. On the other hand, tax avoidance is basically using how taxes work in order to lower your tax bill. This is completely legal, and it can be done by structuring your transactions in such a manner that you reap the largest tax benefits. We will talk about some ways to do this in the following sections.
Deductions and Credits
These two terms are the first and the easiest way to reduce your tax bills without getting accused of tax fraud, so, let’s talk about them in more detail.
Claiming tax deductions lowers your taxable income, hence reducing your tax liability. Basically, you can subtract the amount of the tax deduction from your income, granted that you have a valid reason, and in that way make your taxable income lower. The important thing when it comes to reducing your taxable income is you need to be aware of what is deductible and what isn’t. So, do your research first, get to know the rules, and make sure to document the deductions properly. If you don’t do this, it will be a red flag for the IRS and may be considered proof of tax fraud.
Once you have claimed every tax deduction that you can, you should seek every possible tax credit that you are eligible to claim. Tax credits are generally even better for tax avoidance than deductions since they are subtracted directly from your tax bill, while deductions are subtracted from the income on which your tax bill is based.
Seek Advice From a Tax Professional
It should be noted that the forms and procedures used to calculate and claim business tax credits often can be very complicated. If you aren’t sure about the details, you can always seek advice from a tax professional.
In the end, doing your research truly is beneficial. Tax avoidance is definitely worth looking into since it can help you save money, and basically costs you nothing but time that you put into research. So, be careful, don’t overstep the boundaries, and you have nothing to worry about.