There are plenty of methods approved by the IRS or state tax code that can help. The use of these legitimate ways for reducing tax liability is known as tax avoidance. Many people pay more state and federal income tax than necessary simply because they misunderstand tax laws and don’t keep good records. The most common means of tax avoidance is accomplished by claiming all your permissible deductions and credits. For example, contributing to a pre-tax retirement fund lower’s your current taxable income.
This is Tax Avoidance
Federal and state tax regulations provide for deductions, credits, and adjustments to your income that will lower your tax burden. Here are some frequently used tax avoidance strategies
• Increase Retirement Savings: Putting aside money for your retirement is an effective tax avoidance tool. Joining an employer-sponsored plan if possible. These plans frequently take from your pre-tax earnings and are withdrawn directly from your pay check. No employer plan no problem. You can open and IRA account and, within certain limits, your contributions are tax deductible.
• Maximize Work Deductions: Don’t overlook your non-reimbursed business expenses. The IRS lets you deduct expenses that are “ordinary and necessary” to do your job. That would include things like union dues, dues or subscriptions to professional societies, unreimbursed mileage and tools.
• Tax-Smart College Savings: Some college plans work like 401(k)s or IRAs in that your investment grows-tax deferred, and payments for college costs come out federally tax-free. But the
• Use Home Equity: Unlike other forms of borrowing, home equity loans have the bonus of tax-deductible interest. There’s a cap on the amount of the annual deduction you can take based on your income and if the funds were used for home improvements.
• Health Savings Account: If you have a high deductible health care plan, you should consider a health savings plan (HSA). The money you contributed to the HAS is tax deductible and it can be used to pay for qualified medical expenses. What you don’t use is rolled over to subsequent years.
Tax evasion is different, it is the use of illegal means to avoid paying your taxes. Tax evasion occurs when the taxpayer either evades assessment or evades payment. For example, if someone transfers assets to prevent the IRS from determining their actual tax liability, there is an attempted to evade assessment. However, if the assets are hidden after a tax liability has become due and owing, this is an attempt to evade payment.
An honest mistake on your tax return doesn’t qualify as tax evasion. A conviction requires the prosecution prove you willfully acted to evade assessment or payment of your taxes. This crime comes with serious penalties, including: (a) Fines: Tax evaders not only have to pay their original tax liability plus interest, but there are also hefty fines that accompany any conviction. For individuals, a fine of up to $100,000 can be assessed. (b) Prison: There are different maximum prison sentence for evading assessment versus evading payment. Terms can range from a few months to several years depending on the circumstances.
If you’re frustrated by the amount of taxes you pay, seek help from a tax professional to explore legal methods for reducing your burden. Remember, tax evasion is a crime with serious penalties. Do not take part in any of these activities – (a) Reporting Income: Perhaps you earned income on tips, or walking dogs after school. If you don’t report all your income, you can be found guilty of tax evasion. (b) Taking Unearned Deductions: This commonly occurs when taxpayers claim expenses on their taxes that they did not incur. When you file your return you obliged to provide honest and true statements of earnings of face criminal charges. (c) Don’t File Tax Returns: You can’t hide from the IRS by not filing a return. The government monitors tax statements from employers and interest statements from financial institutions. If you made money, the IRS likely knows and expect your to file a return. (d) Deliberately Underpaying Taxes: Filing your return is only half of your responsibility. You are also required to pay your taxes. Failing to pay is punished as harshly as if you never filed. If you’re having trouble paying, contact the IRS or state agency and arrange payments.
Tax Lawyer Free Consultation
When you need help with a tax matter, please call Ascent Law for your free tax law consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506