Tax evasion and tax avoidance may sound similar, but they are not the same. Tax avoidance means using tools available under the law, such as deductions and credits, to reduce the amount of taxes one owes.
Tax evasion means seeking to avoid paying the taxes that one owes instead of reducing the penalty through legal means. Here are some things that taxpayers should know about tax evasion.
Tax evasion occurs more frequently among high-income households
Conventional wisdom might suggest that people with low income are more likely to commit tax evasion, perhaps out of an inability to pay tax bills. According to the Brookings Institution, however, research indicates the opposite. Between one-quarter and one-third of tax evasion cases occur within the top 1% of earners despite the fact that they account for only 18 percent of all earned income.
Tax evasion can be unintentional
Tax evasion can be deliberate when people intentionally do not pay as much as they owe or purposely do not report all their income to artificially decrease their tax penalty. However, honest mistakes can sometimes amount to tax evasion. Generally speaking, ignorance of the law is not an excuse, and according to Forbes, the Internal Revenue Service can impose penalties based on the availability of information about the requirements that apply in a given situation.
Tax evasion can be either a civil or criminal matter. The IRS may be more likely to take civil action in the case of an honest mistake, but criminal charges may be more likely if the evasion appears to be deliberate.