Tax avoidance and evasion: What's the difference

Tax season -- even though it has been extended this year -- is still a stressful period for a lot of professionals. The tax code is increasingly complex, and that often leaves people worrying that they're going to get into trouble for some kind of mistake -- especially when they're self-employed.

A lot of people are confused about the difference between tax avoidance and tax evasion. It essentially boils down to one thing: Tax avoidance involves legal maneuvers that are designed to reduce your taxes, while tax evasion involves illegal maneuvers that are designed to help you evade taxation.

How do you tell the two apart? It's largely a matter of motivation.

It's perfectly legal to pour over the tax code and work every legitimate break you're given to lower your taxes. It's not okay, on the other hand, to take deductions that you know will never stand up to scrutiny because they aren't legitimate business expenses. You could not, for example, deduct the cost of your dog and vet bills by claiming that the dog is the company mascot -- or deduct a motorcycle because it helps you relieve your work stress. When you knowingly try to take a deduction that isn't related to your actual business expenses, that could be considered evasion.

It's always possible to make an innocent mistake that looks like tax evasion. You may have wrongly trusted your financial advisor or simply misunderstood how to apply certain deductions to your taxes. That doesn't make you a criminal -- although the Internal Revenue Service may not see it that way.

If you're accused of tax fraud or evasion, find out how an attorney can protect your rights and help you obtain a positive outcome for your case.

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