04 Mar Which Is More Common: Tax Evasion or Tax Avoidance?
In many cases, the terms tax avoidance and tax evasion are used interchangeably. Especially when we talk about a celebrity who avoided or evaded taxes. What do you usually say? That they avoided taxes or that they evaded them? If you don’t know for sure, then you understand how widespread the interchangeability of the two terms is.
However, in reality, the two concepts in the eyes of the IRS and the law are quite different. For that reason, we wanted to discuss how the two differ and which one is ultimately the most common occurrence in the real world. Let’s have a look:
The Main Difference Between Tax Evasion and Tax Avoidance
In the eyes of the law, the two concepts couldn’t be further apart. That’s because tax avoidance is legal as it is a way of minimizing taxes. When you avoid taxes, you are using any of the many legitimate means to pay fewer taxes. Some of the legal ways to avoid paying taxes are:
- Tax deductions – the more you know about how the tax system works, the more deductions you can find for yourself
- Setting up tax-deferral plans – incredibly valuable for long-term savings goals, like retirement or investment (SER-IRA, 401(k) plan, etc.)
- Taking tax credits – a dollar for dollar reduction that can be claimed, even if you don’t itemize deductions
People also tend to use the benefit of something called tax shields. Take a look at this article if you want to learn more about it.
On the other hand, you have tax evasion, which is entirely illegal and frowned upon by the IRS, to say the least. It’s downright not paying your taxes by:
- Reporting more expenses than you have to get higher deductions
- Not reporting parts or all of your income
- Not paying part or all of the taxes you owe
- Understating the amount of taxes you owe
Essentially, even if you can’t tell how bad tax evasion is in comparison to tax avoidance, one thing can paint a clearer picture. Tax evasion is part of a broader term we all know – tax fraud. So, when people evade taxes, the IRS criminal investigations unit will prosecute them for committing tax fraud, which can yield very high sentences.
Tax Avoidance or Tax Evasion – Which Happens More Often?
Now that you have a much clearer picture of what the two terms signify, you can probably already guess which occurs more commonly. Yes, tax avoidance is a lot more common, as it is perfectly legal. Anyone who knows anything about tax deductions, credits, or deferral plans, has done, at least once, tax avoidance.
On the other side, tax evasion cases are much rarer, and you can expect the IRS to go after even the smallest of cases of tax evasion.
All in all, you need to use only legal means if you want to pay fewer taxes. By understanding what is permissible and what isn’t, you are a step closer to knowing how to avoid and not evade taxes. If you want to know more, feel free to contact Golden Tax Relief.