DO NOT TRY THIS AT HOME!
NO, WE’RE SERIOUS. DO NOT TRY THIS!
Let’s be honest with each other.
If it bleeds, it leads.
Flash, sizzle, sex and controversy equal eyeballs, likes, follows, and coverage.
That doesn’t make ANY of it good advice. In fact, there is an overwhelming amount of content that exists solely for clickbait, and it’s bad advice.
In modern vernacular, FOMO and YOLO lead to a lot of FAFO - Fool Around and Find Out
In the tax universe (infinitely less exciting than the Marvel Cinematic Universe, but more likely to have an effect on your personal finances), there is a lot of content on social media that lures you in with the promise of never paying taxes, or getting huge amounts of money from the government.
In almost all cases, they’re completely, 100%, totally false.
In the remaining cases, the majority apply to such a small percentage of the population that it almost certainly does NOT apply to you or your company.
Tax Avoidance is 100% LEGAL. Tax Avoidance is the process of using the existing tax laws to your advantage, taking deductions and credits available to you. Think about things like personal home interest, charitable contributions, estate planning, business credits for setting up retirement plans, Work Opportunity Credits, ordinary business deductions, etc.
Tax Deferral is also 100% LEGAL. Deferral is the act of pushing off the tax owed to future years. Accelerated depreciation comes to mind, as does making traditional IRA and 401k contributions. You pay tax on those two when you take your distributions during retirement. With accelerated depreciation, you get the benefit of the deduction now instead of spreading it out over time.
Tax Evasion is 100% ILLEGAL. The GO TO JAIL, GO DIRECTLY TO JAIL type of illegal. Evasion is preparing and filing false information with the government, or making claims with the government that are based on information you know to be or should know to be false. We’re talking about things like willfully not reporting your cash or barter income, taking deductions for items you didn’t purchase, claiming dependents on your personal tax return that aren’t your dependents, claiming to be Head of Household when you know you don’t meet the criteria for that status, etc.
Tax Evasion isn’t honestly forgetting that you had $25 in interest income on an account, or any other honest mistake. Errors and mistakes happen, and the IRS knows that. They may hit you with the additional tax and late payment interest, but that’s usually the extent of it. If the mistake is a large percentage of your taxable income, you may even get the accuracy related penalty, but you don’t usually get a criminal charge.
Evasion is a willful act. Think about things like concealing assets, making false statements to the IRS, willfully failing to file returns, etc.
Want to FAFO with Tax Evasion? You’re looking at up to a $100,000 fine (it grows to $500,000 if you’re a corporation), and 5 years in prison. PER CONVICTION. So, if you willfully decided to evade the IRS for 5 years, you could be looking at 25 years in prison.
Breathe. Calm down. The IRS doesn’t often go after people with such vigor. If you just plain forgot to file for a couple years, the IRS isn’t going to send a team of armed mercenaries to your door in the middle of the night. You should file as soon as possible, pay what you owe (if anything), and possibly negotiate the penalties (if any).
That being said, if you decide that paying taxes is for suckers, and you know the super secret special way to never pay taxes, then remember this quote (true author unknown):
“You are free to choose, but you are not free from the consequences of that choice.”
In summation, get a professional to advise on things that are THIS important!
