It is not a crime to want to pay less in taxes. However, there are legal and illegal ways of decreasing your tax bill in Texas. Using legitimate methods to maximize your after-tax income is considered tax avoidance. Tax avoidance is legal. Tax evasion, on the other hand, is deliberately using illegal methods to avoid paying your taxes. If you are convicted of tax evasion, you can face large fines, penalties, and in serious cases, prison time.

Tax Evasion vs. Tax Avoidance According to Texas Law

What is Tax Avoidance?

Tax avoidance is when a person uses legitimate methods approved by the IRS and the Texas Tax Code to lower their tax bill. Common ways that an individual could engage in tax avoidance in Frisco, Texas include:

  • Investing in tax-advantaged accounts, like IRAs, SEP-IRAs, 401(k)s, HSAs, and 529 accounts;
  • Claiming all available deductions, such as ordinary and necessary business expenses, charitable donations, and medical expenses;
  • Taking all available credits, like the Earned Income Tax Credit, Work Opportunity Tax Credit, or the Child and Dependent Care Credit; and
  • Deferring income, like postponing a year-end bonus until the following year when you expect to be in a lower tax bracket.

These are just a few general examples of tax avoidance methods in Texas. The tax code is complex and constantly changing. It is always best practice to consult with a tax professional. A professional will have the expertise required to ensure that you are legally achieving your maximum tax avoidance. You do not want to overpay, but you must act within the law.

What is Tax Evasion?

Tax evasion is when a person illegally avoids paying mandatory taxes. You must intentionally fail to pay taxes to be convicted of tax evasion in Texas. There is a big difference between an honest mistake and deliberately committing tax evasion. Mistakes can result in IRS penalties, whereas tax evasion can result in criminal charges.

There are several different ways that individuals and businesses commit tax evasion in Texas. Some of the common methods Texans use to commit tax evasion are listed below.

  • Failing to file an income tax return.
  • Underreporting or omitting income. This usually happens when you own a business and do not report cash payments.
  • Inflating or falsifying deductions. This includes acts such as claiming personal expenses as business expenses or falsifying books and records.
  • Hiding money in offshore accounts. While it is legal to keep money in foreign bank accounts, you must file all appropriate reports, like the FBAR and FACTA.
  • Collecting payroll taxes and failing to pay them to the IRS. This is sometimes referred to as pyramiding.

If you are the subject of an audit or investigation and worried about the possibility of tax evasion charges, you should reach out to a Frisco criminal defense attorney. They can review your documents and advise you on the best course of action.

What are the Penalties for Tax Evasion in Texas?

Tax evasion charges are taken extremely seriously in Texas, and you can be charged at both the federal and state level. Federal tax evasion is a felony and punishable by up to five years and up to $100,000 in fines ($500,000 in the case of a corporation). In addition, defendants could face probation, community service, and restitution. The severity of the penalties is dependent on the amount of taxes the defendant failed to pay.

Texas does not collect personal income tax, so state tax evasion charges typically only apply to businesses. As with federal charges, the penalty is mainly dependent on the amount of taxes the defendant did not pay. The penalty ranges from a Class C misdemeanor for amounts less than $50 all the way up to a first-degree felony for amounts greater than $200,000. In Texas, first-degree felonies are punishable by five to 99 years in prison, as well as fines of up to $10,000. If a Texas business is convicted of state tax evasion, its sales permit could be suspended or even revoked.

In addition to criminal consequences, a tax evasion conviction can impact your reputation in the community, family life, and educational and career opportunities. A tax evasion charge should not be taken lightly. It is critical to have an experienced attorney on your side.

Your Frisco Criminal Defense Attorney

If you have questions about tax evasion, you should reach out to an experienced Frisco criminal defense attorney. Philip D. Ray is a knowledgeable Frisco attorney who will make sure that your rights are protected. Call Philip D. Ray today to schedule a consultation at (469) 588-6770.