Tax evasion is the intentional underpayment or avoidance of taxes – something that no business should ever risk. It is a crime under the law, if discovered, which carries with it serious criminal and civil penalties. For individuals, tax evasion generally refers to income tax evasion, while businesses commit tax evasion when it comes to sales tax, payroll taxes and any other statutory taxes.
Examples & Implications of Tax Evasion
One example of tax evasion is for a business to collect and keep sale tax revenue but fail to report the income. This is fraud and may result in jail time, fines, and other penalties that could ultimately destroy a business. Another example is a business deliberately underreporting its income or lying on tax returns. This too is a crime with serious consequences.
In some cases, a taxpayer can “forget” to report some types of income or to file the appropriate taxes. This type of negligence might not be illegal from a criminal standpoint, but civil penalties can still apply, regardless of the intent.
What Entrepreneurs Need to Know About Tax Evasion
Like other serious crimes, including murder and assault, tax evasion is a felony. The maximum penalty for tax evasion is a fine of up to $250,000 and up to five years in jail, regardless of how much money is involved.
As an entrepreneur, you must know that the tax agency can discover the evasion by conducting an audit. The agency can access bank records and financial statements and can view income tax returns when it suspects evasion. Tax evasion offenses are very difficult to prove in court, and a taxpayer cannot be convicted of tax evasion without strong evidence.
Entrepreneurs need to know that evasion is a serious crime that can destroy a business, on both financial and personal levels. That’s why it’s so important to be aware of the laws surrounding taxes and to always be honest in your filing and reporting. It’s the right thing to do – and the legal thing to do.