What is Tax Evasion?

When it comes to filing your taxes, there are a lot of terms that may give you goosebumps. Sometimes, these terms are shadowy and undefined, so let’s demystify tax evasion by defining the term—and, of course, how to avoid it.

What is considered tax evasion?

Tax evasion is the crime of deliberately not paying some or all of the taxes you owe. It can be as bold as simply not filing a tax return or as sly as leaving out key information when you file, dealing in cash to avoid a paper trail, associating income with someone else, or filing with a false identity.

Can you go to jail for tax evasion?

Absolutely: Once the lack of payment has been determined as willful, the consequences can be as severe as prison time of up to five years, a fine up to $250,000 for individuals or $500,000 for corporations, or both. And you don’t get off the hook for cost of prosecution, which is just the cherry on top of the “don’t do it” sundae.

Is not filing taxes tax evasion?

Not necessarily—if you make less income in a year than the standard deduction for your filing status, you aren’t required to file a tax return. (It may still be a good idea, though.)

When we talk about tax evasion being a deliberate avoidance of paying your taxes, the key word is “deliberate.” Some taxpayers may not realize they need to file a tax return, or accidentally leave out information with no intention of being dishonest. In that case, the IRS would conduct an audit, which is essentially a chance for the taxpayer to get everything straightened out in good faith.

Is tax avoidance the same as tax evasion?

No, because tax avoidance is simply managing your finances so that you owe less tax, not avoiding paying taxes you already owe. For example, contributions to a Health Savings Account (HSA) are tax-free, so if you come to the end of a year and want to save a little on your taxes, making a large contribution to an HSA will lower the amount of taxes you owe.

At 1040.com, we’re all about lowering your taxes owed—that’s why we’re so focused on catching every tax break you qualify for. The best part is that we’re doing the hard part in the background; all you have to do is follow our easy walkthrough to file your taxes.

Ready to start filing? Just log in or sign up and get your taxes done today!