Taxes may be the least favorite topic for business owners. The saying goes there are only two things in life that are certain—death and taxes. For a business, there are just taxes. It doesn’t matter who you are, how influential you are, or how much money you earn, everyone still has to pay taxes. It’s natural that business owners would want to pay the least amount of taxes possible. That usually happens through tax evasion, tax avoidance, or strategic tax planning. As a business owner, it’s important that you understand which one of these methods is the right one. Learn the difference between strategic tax planning, tax avoidance, and tax evasion.
The Difference Between Strategic Tax planning, Tax Avoidance, and Tax Evasion
Tax evasion is the method of lowering your taxes by breaking the law. This method includes the intentional act of failing to either file tax returns or pay the tax liability or both. It also includes manipulation of taxable income records, concealment of facts by deflating income or inflating expenses, as well as other underhanded tactics to avoid taxes.
Examples of Tax Evasion:
- Don’t File Tax Returns: You cannot avoid the IRS by not filing a return. The government monitors tax statements from employers and interest statements from financial institutions. If you made money, the IRS already knows and expects you to file a tax return.
- Under Reporting Income: Did you earn income on tips or walk a neighbors dog for extra money? If you don’t report all your income you can be found guilty of tax evasion.
- Taking Unearned Deductions: Claiming expenses on your tax return that you did not incur is tax evasion.
- Deliberately Underpaying Taxes: Filing your return is only half of your responsibility, you are also required to pay your taxes. Failing to pay your taxes is punished just as harshly as if you never filed.
Tax evasion is a criminal act that has serious implications. If you get caught, you would be penalized either through hefty fines or a lengthy jail term. Tax evasion is a severe crime.
Tax avoidance can be thought of as the “grey” area between tax evasion and strategic tax planning. While it is technically not breaking the law, it is an immoral act that can kill the spirit of the law. Tax avoidance is the method of lowering your taxes by arranging financial matters in such ways that are not anticipated by the government so that it is not considered as illegal. Think of this method as twisting the rules of the tax system and taking advantage of the loopholes in the provision of law. If you aren’t careful, tax avoidance methods could potentially backfire on you someday, and the consequences could involve those similar to tax evasion.
Strategic Tax Planning
Strategic tax planning is the right method for lowering your taxes. This method allows business owners to reduce their tax liability, without breaking the law, by taking full advantage of the IRS Tax Code. Strategic tax planning, through the Tax Blueprint®, is your customized proactive tax reduction plan. If you want to save tens-to-hundreds of thousands in taxes every year, that is exactly what we help businesses do.
Examples of Strategic Tax Planning:
- The August Rule: Did you know that you can rent your house to yourself, creating tax-free income.
- Medical Expenses: Did you know there is a way to write off medical bills as business expenses?
- Those are just the beginning!
The majority of CPAs do not know how to do this level of tax planning, they just aren’t trained to do so. We know how to comprehensively use the IRS Tax Code and leverage the benefits for you. Our tax reduction strategies are all legal, ethical, and moral. In fact, every tax reduction strategy we employ in the Tax Blueprint is sourced and referenced directly to the IRS Tax Code. You will see sources of tax savings, directly from the IRS Code, along with implementation plans. These are highlighted and summarized so you can be confident that the savings you see are real.
The Right Method is Strategic Tax Planning
While in the past you may have heard the terms used interchangeably strategic tax planning, tax avoidance, and tax evasion are all very different ways of lowering your tax liability. You want to take advantage of strategic tax planning strategies while staying far away from anything that looks like tax evasion.
At Financial Gravity, we know that it’s not what you make, it’s what you keep that counts. Don’t wait another minute, paying more taxes than you legally, ethically, or morally owe. You need a Tax Blueprint. Contact Financial Gravity to get started today.