Whether we want to or not, paying taxes is part of being a resident of Mississippi and a citizen of the United States. And it can mean serious legal trouble to not pay the taxes you owe the government.
But this isn’t to say that every way of reducing your tax burden is illegal. The term ‘tax avoidance’ refers to legal means by which you can decrease the amount of taxes you owe. While ‘tax evasion’ refers to not paying the taxes you legally owe. The second can land you in hot water, requiring a criminal defense strategy.
Tax evasion is considered a felony offense, and falls under the umbrella of tax fraud. Some examples of acts that can lead to tax fraud charges are:
- Not reporting your full income
- Claiming deductions and expenses with no proof or validity
- Hiding assets, sometimes through offshore accounts
- Choosing not to pay taxes you owe
- Business tax evasion, which involves misrepresenting payments made to employees
One important point about tax evasion is that pleading ignorance is not a valid defense. Even if you had the best of intentions, if the government proves you misrepresented your tax situation, you can be found guilty.
The Internal Revenue Code allows numerous ways for a person to legally reduce their tax burden. Some methods of tax avoidance are available to a private citizen, while others are open only to businesses.
One very popular method of tax avoidance is using a tax deferral plan. Examples are 401(k) plans, IRAs, and SEP-IRAs. With these, income placed here won’t be taxed until a later date, reducing your overall income levels and therefore yearly tax burdens.
The government also offers a wide range of tax credits to incentivize behaviors they support. Often, a professional tax preparer can help with understanding the full range of possible tax credits.