Last Updated on September 25, 2021 by Mikebush The Rich Lazy Asshole
If searching “how to avoid tax evasion” or something similar landed you on this page, you have something helpful to learn. First, note the difference between ‘avoidance’ and ‘evasion’ of tax. Tax avoidance is positive, and considered legal while tax evasion is completely illegal.
Nonetheless, tax is compulsory, and must be paid to state. It is a duty for every citizen and residents the governments levy from your income, added cost on specific goods, services, and transactions, and business profits.
Tax evasion generally refers to tax fraud which is a crime. When you evade tax, you are intentionally and deliberately understating your income. It can also mean you overstating your deduction or credit so that you can underpay tax liability.
Read: Becoming a con man
Can you really avoid tax evasion?
You can avoid tax evasion but so long it points to illegally avoiding tax, it is a crime. Tax evasion is quite the different from tax avoidance. While the latter can be perfectly legal, the former is completely illegal. Tax evasion is a term for not paying taxes while tax avoidance is a taxpayer’s terminology that means to lower you tax. Regarding tax evasion, there is no way you can avoid it and still get away with paying taxes legally. You can only legally avoid paying taxes while evading taxes means you breaching the tax laws. In essence, although you can avoid tax evasion, tax avoidance is the best alternative.
How to Avoid Tax Evasion
The only way to avoid tax evasion is to avoid tax. This means you must exhaust the alternatives of tax avoidance to keep yourself from evading it. However, if you mean to get out of paying tax entirely, then you have to underreport your income and hide the extra cash through an offshore account or money laundering. It is still evasion though.
Before you read down, look at the story of Magdalena Ferkova, a wanted tax fugitive was captured and jailed. She fled to the Czech Republic and was returned to the UK to start a five-year jail term after being arrested.
Unfortunately, if your state is aware of your transactions, they can tell if you reported income accurately, which makes evasion difficult. In this case, you must make sure not to report your expenses. But if you reported your expenses, you just made your income traceable.
Let’s say you buy an item from John Doe at $600. If Mary Jane reports an income of $150, they have hidden $450 from the transaction. And if John Doe goes on to report $600, it tips the government that something might be fishy about Mary Jane’s income report.
However, there are practical problems:
- If the government decides to invest the situation, they would have to spend some much on paperwork to evaluate every transaction nationwide.
- Most consumers hardly keep meticulous records when they spend on something.
Nonetheless, the government might be able to take a simpler approach. They can ask consumers to furnish three random receipts each year. The bureau collects it, examines the receipts and compare them to the transactions companies had reported earlier. If there is a difference on one receipt from the income a company reported for that particular transaction, the government can tell something is wrong.
In this case, it will be assumed that the individual or company underreported the transaction and many more transactions. You will also receive stiff fines as a reward.
Another thing to ponder about is what if a company deliberately print receipt incorrectly? Yes, they can. A company wants to get out the mess, and so they get you in to ensure a balance. Nevertheless, you can always demand a refund equivalent to the amount they underreported in your name
But a company can refuse to furnish receipts. In this case, the government can tell that the company is evading tax. An undercover agent can purchase something from a store, and no receipt is issued. The company will be fined because it could be an attempt to evade taxes.
What if you misplace your receipts as a buyer from a store? It gets even interesting here. In some countries, you receive a special receipt whenever you make purchases. You will typically notice some kind of number printed on your receipt. It identifies the transaction, so it is more than a receipt.
The government can employ various ways to track the receipt number to check if the transaction was reported correctly. Businesses being aware, they fear to underreport income because they are not sure about the transaction the government can decide to audit.
In essence, perhaps underreporting your tax is not even a thing as you might get caught at random.
What causes tax evasion?
The major cause of tax evasion is high tax rates or types. Nobody wants to pay the hefty taxations because they think they could be saving for future use. The regressive taxes scheme and the rate differences between tax brackets, and tax burden also contribute to the reasons why people plan to evade taxes. Tax burden is often generated by the various levels of government, including federal, state and local, which add up what you have to pay as tax.
How you avoid tax evasion is simply your determination to contribute to the collective growth of the country. As mentioned earlier, paying tax is a responsibility, so you do not want to evade it. It is a punishable offence, and usually leaves you at the mercy of the bureau.