Those living in Georgia are subject to multiple taxes. There is a sales tax throughout the state, as well as taxes that apply to those who own real property. There are also state and federal income taxes that people have to pay every year.
Some of these taxes allow very little wiggle room, while you can reduce other tax obligations with knowledge of the law. When preparing a tax return, it is important that you understand the sometimes fine line between tax avoidance, which is perfectly legal, and tax evasion, which is not.
Tax avoidance involves using legal strategies
There are numerous ways for you to reduce how much you pay in income tax each year. Carefully reviewing your circumstances is a part of that process. You need to also be aware of the current tax rules, which change every year.
From tax credits and exemptions based on the size of your family to charitable donation write-offs, there are numerous legal and appropriate ways that you can significantly reduce how much you pay in taxes to both the state and the federal government.
However, the legality of trying to reduce your tax responsibilities confuses some people. While last-minute contributions to charitable causes and tax-deferred retirement savings plans are reasonable, other strategies are not. It is not permissible to claim personal purchases as deductible business expenses or to lie about the number of dependents in your household.
Some strategies that people think will save them from taxes, like starting offshore bank accounts, merely come to the process of filing a tax return, as the taxpayer will still need to report those international assets and pay tax on them.
What happens if you face accusations of tax evasion?
If the Internal Revenue Service (IRS) suspects that you have intentionally tried to avoid paying your fair share in income taxes by misrepresenting your circumstance or falsifying financial records, you may face an audit where they review your financial records and tax paperwork in detail. You could also potentially face criminal charges.
If the IRS determines that you underpaid your taxes, you can expect to pay whatever they calculate you didn’t pay, as well as penalties and interest on those amounts. Those facing an audit or criminal charges related to tax matters have the right to legal representation both when in court and when facing the IRS.
Learning more about income tax law can help you avoid violations and respond appropriately to IRS scrutiny.