As simple and everyday average Joes, it is understandable that a lot of people usually look for accounting services whether they live in a suburb like Kearny, New Jersey or in the heart of a metropolitan area. And, it’s also understandable how many confuse “tax evasion” and “tax avoidance” with one another. After all, it’s not everyone’s responsibility to check on all these technicalities when it comes to accountancy, right?
But no, this shouldn’t be the case. Whatever your profession is, you’ll find that it’s actually beneficial to know about these things. Knowing the difference between tax evasion and avoidance might just save you one day.
So What is Tax Evasion?
First and foremost, tax evasion is illegal. It’s the intentional act of underpaying or not paying your tax liabilities. But, what if you have liabilities that you didn’t actually know about? Fortunately, people can’t be considered guilty of this offense unless there’s clear evidence of the act being deliberate.
When committing tax evasion, acts of fraud, concealment of reports, and other similar steps are involved. This means falsifying documents, not filing tax returns, faking expenses, or hiding parts of your income/profit. And when proven guilty, the taxpayer may be jailed for up to five years, or given a fine of $250,000 to $500,000, or both.
And What is Tax Avoidance?
The biggest difference between tax evasion and avoidance is that the latter is actually legal. Unlike tax evasion, tax avoidance is the act of minimizing your payable taxes as much as possible. This is done through methods approved by the IRS or supported by the country’s Tax Code. Now, to make sure that you’re doing it right, look for the assistance of professionals who provide tax services. In Kearny, New Jersey alone, there are already a number of accounting firms you can approach for this. Just make sure you approach one that can really maximize the amount you can save.
Some common methods are increasing allocations for retirement, increasing work deductions, claiming tax credits, and deducting as much business expenses as legally possible. In general, most investment and retirement plans are tax-exempted, so contributing more for those means having less taxable income or profit. As for tax credits, IRS has a lot of “rewards” for taxpayers who would do or who wouldn’t do certain acts, and you’re most probably already qualified for at least one.
Tax evasion is a crime, and you should know better than to attempt it. Meanwhile, tax avoidance is a legal means to lower your payables. This means knowing how to do it would be immensely beneficial for you. Whether you belong to the league of small businesses or big businesses, knowing something about tax accounting is always helpful.
Now, if you ever need some assistance in lowering your taxes or tax preparation in general, feel free to approach our firm, Nicholas J. Coco, CPA. We provide reliable accounting services not only for Kearny, New Jersey but also for the surrounding areas such as Newark, Clifton, Jersey City, and the rest of the state. So call us at 201-955-3100 for any inquiries, or feel free to read through the rest of our website for more information. We can provide advice on how to avoid tax evasion and assistance on how to do tax avoidance the right way.