What You Need To Know About Tax Matters
Individuals and business owners alike are obliged to do their annual tax returns. However, did you know you can avoid paying tax? Confusing? Not at all! Evading tax is illegal. Avoid-evade is two terms every taxable citizen should learn and know their ins and outs to steer clear of trouble and maximize the benefits.
Tax planning with property tax partners helps determine how to run your transactions to reduce or eliminate tax liability.
Tax avoidance is legal and an informed opinion anyone can take to help reduce their tax obligation. It reduces your tax bill by skewing your transactions to give you substantial tax benefits. You can obtain the least possible tax rate by:
- Minimizing your taxable income
- Maximizing tax credits and deductions
- Manipulating income and deductions timings
On the other hand, tax evasion is any attempt to reduce or fail to pay a tax liability. This can be done by concealing, deceiving, or by taking unauthorized deductions. Those who evade tax know it’s wrong but do it, hoping no one will find them out. Tax evasion is using illegal means of avoiding paying it.
To convict a business or individual of tax evasion, the following are required:
- Proof of the unpaid tax debt
- Evidence that the defendant attempted to evade paying tax-whether they successful or otherwise
- Proof that the defendant intended to avoid their legal duty to pay tax
Types of Tax Evasion
Business firms are more susceptible to the taxman’s keen scrutiny than wage earners even when their income is almost similar. This is because a business has both legal and illegal options to avoid paying tax. Below are some common criminal practices that violate tax law.
Omitting Or Under-Reporting An Income
Tax liability is calculated against income. When you hide any information about a source of income, you’re guilty of fraud. One may also be tempted to lower the income of a particular business, thus lowering the taxable income. If you forge figures downwards, you’re committing a tax crime.
Another way of reducing income is by structuring. Here, one may mechanically lower deposits, transfers, and withdrawals, way below bank reporting regulations. Therefore, your actual income is concealed.
Hiding Or Transferring Assets Or Income
One may hide funds in an account or allocate erroneous amounts between taxpayers. For instance, improper allocation of income to a related taxpayer who happens to be in a lower tax bracket is tax fraud.
Claiming Personal Expenses As Business Expenses
This is one of the most tempting traps for a taxpayer. Some assets such as cars, laptops, and airtime can be termed as either personal or business. Avoid such circumstances by keeping proper records.
Engaging In Shoddy Transactions
It is fraudulent to label a transaction what it is not. For instance, payment to a corporation’s stockholders is referred to as dividends. It can never be recorded as interest. If you do this, it translates as an attempt to hide payment because the interest is not subject to deductions.
Tax avoidance is legal and can save you some substantial amount. Tax avoidance is illegal and punishable by law. Be honest about your income and honor your tax obligation.