What is Tax Evasion?

In most parts of the world, individuals and businesses are obligated to pay taxes, either to the federal government or to their local state governments. If a taxpayer fails to comply with the tax laws and regulations, tax evasion may have taken place. Tax evasion is an illegal activity wherein individuals and businesses purposely avoid paying taxes. Tax evasion is seen as a criminal offense, since it involves taxpayers not meeting their obligations to the government, and involves can involve fraudulent behavior. It’s important to understand the laws and regulations in place to avoid tax evasion.

Understanding Tax Evasion

It’s important to understand that not only is it illegal to avoid paying lawfully obligated taxes, but it is also unethical. Society relies on taxes being paid to ensure that resources are allocated accordingly, with the taxes paid on incomes and profits used to provide important public services, infrastructure and welfare benefits. Tax evasion is seen as a breach of public trust, and has been made even more difficult with increased tax transparency and exchange of information between governments. Often, individuals and businesses attempt to use illegal tactics and fraudulent behavior to reduce the amount of taxes which are due to the government.

Types of Tax Evasion

Tax evasion can take many forms involving both individuals and businesses. For individuals, tax evasion commonly involve underreporting income, overstating deductions or credits and claiming false exemptions, in addition to hiding income or assets in offshore accounts. For businesses, some of the most common types of tax evasion involve not reporting income made via cash transactions, failing to report income from foreign sources, improperly classifying employees as independent contractors, understating profits and artificially inflating expenses.

It’s important to understand the risks associated with attempting to evade taxes. Individuals or businesses involved may face high fines and even jail time. States may also use civil and criminal penalties against those who are found to be involved in tax evasion. In order to avoid these risks and to remain compliant with tax laws, it’s important to be informed on current tax laws and regulations. In addition, individuals should work with professionals such as auditors, accountants, and attorneys to ensure tax compliance.