Each year, millions of tax returns are filed by people living in Pennsylvania and other states throughout the country. In most cases, a return represents an accurate accounting of an individual’s tax situation for the given year. However, there are some who choose not to report all of their income in an effort to avoid losing money to the government or to obtain a larger refund.
Tax evasion
Tax evasion occurs when you willfully underreport income from wages, the sale of stock or any other source that should be listed on a tax return. It’s important to note that the IRS may be able to gather evidence of tax evasion even if you don’t file a return in a given year because your employer, stockbroker or other entities may be required to send forms to the IRS listing the amounts that you were paid during that tax period.
Tax avoidance
Tax avoidance is the practice of taking legal steps to minimize the amount that you owe the state or federal government. These steps may include selling stock that has depreciated in value to claim a capital loss or claiming self-employment expenses. You can minimize the risk of an audit or other tax issues by keeping careful records to justify your decision to claim a credit or deduction.
If you are convicted of tax evasion, you may pay a fine, spend time in prison or face other penalties. You will also be required to pay any back taxes that you didn’t pay. The government may be willing to create a payment plan in an effort to help you avoid financial hardship.
