KPMG Spark Blog

Recommended

LLC vs Inc: Advantages + Disadvantages

Outsourced Bookkeeping vs. In-House Bookkeeping: Everything You Need to Know

Venture Capitalists vs. Angel Investors: Who Can Benefit Your Small Business Best?

Tax Evasion or Tax Avoidance?

In the world of finances, tax evasion and tax avoidance are two terms that often get confused and yet have completely different meanings. 

Tax Evasion

Simply put, the term tax evasion means not paying the taxes that you owe. Penalties for this type of infraction can range anywhere from fines to jail time depending on intent. Intentionally foregoing the payment of your taxes will most likely result in hefty punishment.

Don’t believe us? Go read about actor Wesley Snipes' recent 3 year stint in prison after opting out of paying his taxes. 

Important things to remember when trying  to “Avoid” Tax Evasion

  • Declare your independent contractor’s income
  • Don’t inflate business expenses
  • Report income earned in other countries
  • Don’t declare personal expenses as business expenses

Tax Avoidance

Tax avoidance on the other hand, is when you arrange your income in a manner that legally allows you to pay the lowest amount of taxes. And yes, this is legal. In fact, there’s an entire industry built around this concept—it’s called tax consultancy—something we love helping clients with here at Bookly

Speaking on the constitutionality of the matter, Judge Learned Hand said:

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

In most cases, tax avoidance is more applicable to higher income earners. There are less ways for low income individuals to avoid payment of taxes. This fact has been at the helm of much political debate—something we’ll leave to the pundits. 

Methods of Tax Avoidance

  • Deferring income (401k)
  • Getting income through Capital Gains
  • Using the primary residence capital gain exclusion to its full effect
KPMG SparkDecember 4, 2015Posted In: Accounting Info

Download our Free Small to Medium-Sized Business Growth Guide

Recommended

LLC vs Inc: Advantages + Disadvantages

Outsourced Bookkeeping vs. In-House Bookkeeping: Everything You Need to Know

Venture Capitalists vs. Angel Investors: Who Can Benefit Your Small Business Best?

Subscribe

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

KPMG Spark is an online accounting service that saves you time so you can focus on what’s most important for your business.

Sign Up

How Developing Your Pitch Can Help Your Business Grow

The traditional multipage, chart-laden business plan that venture capitalists used to rely on to evaluate opportunities is largely being replaced with documents that convey essential information in a more concise format. 

KPMG SparkAugust 1, 2022Posted In: Business Tips

Why Tax Planning is Important for Small Businesses

Tax compliance is a necessity. An effective tax planning strategy can add considerable value to your business. 

KPMG SparkJuly 27, 2022Posted In: Tax Tips

How is KPMG Spark Different From Other Online Accounting Solutions?

KPMG Spark isn’t a software solution, it’s a software-enabled service—also known as managed accounting—which is vastly different from accounting software.

KPMG SparkJuly 19, 2022Posted In: Business Tips

3 Tips on Engaging With Independent Contractors

When looking to engage a contractor for your business, it is important to know the process so you can find the best possible fit for your business. Continue reading to learn how to simplify the process of engaging with independent professionals.

Ben AsplundJuly 12, 2022Posted In: Business Tips

Should You Be Paying Estimated Taxes?

Find out more about estimated taxes, who pays them, and steps necessary to be compliant.

KPMG SparkJune 28, 2022Posted In: Tax Tips

7 Tips for Nonprofit Accounting

Find out more about nonprofit accounting, how it’s different from for-profit organizations, and what you need to know to operate your nonprofit successfully.

KPMG SparkJune 21, 2022Posted In: Tax Tips

Why Nonprofits Need Managed Accounting

Find out more about nonprofit organizations, why they need managed accounting, and how nonprofit bookkeeping can contribute to their success.

KPMG SparkJune 14, 2022Posted In: Accounting Info

6 Things You Need to Know About Nonprofit Accounting

Let’s take a closer look at what nonprofit accounting is, how it’s different, and why accountability is key for nonprofit success.

Timothy A A StilesJune 7, 2022Posted In: Accounting Info

Should Your Small Business Be Filing 1099-NEC Forms?

Let’s explore Form 1099-NEC – who is required to file it, who should be furnished it, and its importance in meeting your annual tax return requirements.

KPMG SparkMay 24, 2022Posted In: Tax Tips