Many businesses may try to skirt the universal fate known as taxes. While there are ways to avoid taxes legally – paying only your fair share and not a penny more – deliberate fraudulence is a whole different legal matter. Otherwise known as tax evasion, falsifying documents, or lying about income are just some of the ways a business owner can result in serious consequences. If your business is facing tax evasion, consider contacting the experienced business attorneys at The Law Offices of Jonathan Fleisher, Esq. at (732) 360-6409 for legal advice for regarding your taxes in the state of New Jersey.
Step 1: Understand the Difference Between Tax Avoidance Vs. Tax Evasion
One of the first critical steps to take in a tax evasion case is understanding what constitutes tax evasion. Specifically, it is essential to know the difference between tax avoidance and tax evasion.
It makes sense for a business to avoid paying more taxes to the Internal Revenue Service (IRS) than is necessary. Overpaying taxes because of overlooked expenses can lead to costly bills that provide much-needed funds a company could put to better use elsewhere. So, it comes as no surprise when businesses make the decision to work closely with an accountant or attorney to find every expense imaginable. Many deductible costs linger in plain sight, from vehicle mileage to office rent to coffee for the lounge.
Counting off every legitimate business expense, otherwise known as tax avoidance, is legal. Tax evasion, however, is not legal at all. The IRS distinguishes between the two. One is a reasonable business practice, and the other is a crime punishable under the law.
Step 2: Know The Common Forms of Tax Evasion
The problem for many business owners is drawing the line between the fiscally savvy practice of tax avoidance and the crime of tax evasion. Some of the most common ways a business can commit tax evasion include:
Overreporting Expenses
Overreporting of expenses is perhaps the most commonplace way business owners may find themselves evading taxes. While it is considered a good practice to seek an accountant or lawyer’s professional advice, the Internal Revenue Service (IRS) defines deductions that are “both ordinary and necessary” to include the following
- Inventory/Cost of Goods Sold
- Supplies
- Office Rent
- Business Use of a Personal Vehicle
- Travel
- Meals/Entertainment
The grey area that constitutes legitimate business expenses can widen when they overlap with personal expenses. A business owner might think they are innocently writing off that lunch with a friend or that trip to the cabin, but they just might be committing tax evasion.
Hiding Interest
This area of fraud most likely applies to more giant corporations with lots of capital to hide. A business might conceal the interest in the form of stashing cash in anonymous overseas accounts where Uncle Sam can’t see it. A company must pay taxes on interest, so hiding it is one highly illegal way to avoid paying taxes on this interest. Evading tax interest is so common that the IRS created the Foreign Account Tax Compliance Act (FATCA), which requires foreign banks to report on the identities of their account holders from the United States.
Underreporting Business Income
Another common method of evading taxes is by underreporting income. While underreporting income is a more egregious violation of tax law, many businesses – both side hustlers and corporate bigwigs alike – may tempt fate by misrepresenting tax income.
While tax evasion is a crime, many business owners may not realize that their practices constitute this serious legal transgression. However, there are times when business owners can make ethical missteps and commit willful fraud. Whether you knowingly or unknowingly committed tax evasion, getting legal help from the attorneys at The Law Offices of Jonathan Fleisher, Esq. is an option if your business is facing tax evasion.
Other Forms of Tax Evasion
Other ways a business might evade taxes include:
- Hiding assets or holding assets in another person’s name
- Falsifying or destroying relevant tax records
- Concealing or misleading actions during a tax investigation
- Refusing to cooperate with the IRS
Step 3: Prepare for the Repercussions
The consequences of tax evasion can be severe. Therefore, it is critical to understand how a conviction might affect the personal lives of business owners and the future of their operation. Punishment for tax evasion can include the following:
Restitution Payments
As one might expect, one of the first orders of business when it comes to tax evasion punishment is to pay the taxes owed to the government. This compensation is also known as restitution and usually includes back taxes, penalties, and fees.
Loss of Assets
If there is not enough cash to pay the restitution, the government has every right to start seizing business, as well as personal assets. The government can take possession of cars, valuables, even a home. They can foreclose on all assets, including bank accounts if it means collecting what’s owed to them in unpaid taxes.
Prison Time
Finally, since the law considers tax evasion a federal crime, an offender can face prison time. By most estimates, the average jail time served for tax evasion is three to five years. But longer sentences are possible depending on the severity of the crime.
Step 4: Consider Visiting With Our Experienced Business Attorneys Today
You do not have to have a criminal mastermind plan in order to commit tax fraud. Most tax avoiders that commit tax fraud have no criminal history, and in other cases do so inadvertently. According to the United States Sentencing Commission, over 80% of those that were charged with tax fraud had no criminal record. If your business is facing tax evasion, or if you would like to learn more about how to avoid tax fraud, consider visiting with the experienced and knowledgeable business attorneys at The Law Offices of Jonathan Fleisher, Esq. at (732) 360-6409 to learn more about your legal rights and which steps to take if your business if facing tax evasion.