As an accountant in Orlando FL, it makes me sad to see that the news is flooded with allegations of tax evasion by corporations. Even technological giants such as Google and Apple have been accused of evading tax. When accused, most of the company’s executives claim that they are increasing the shareholder’s return. So what differentiates a company that is engaging in unethical tax practices from one looking out for its shareholders?
Tax avoidance is restructuring of your financial transactions so that you can get bigger tax benefits while tax evasion is a deliberate attempt to reduce your tax liability by using fraudulent means. There are a few distinctions that the IRS uses to differentiate between the two. Some of the distinctions are:
- Under-reporting or Omitting a Source of Income: Many organizations reduce their tax liability by not bringing to notice the sources of their revenue. Concealment of income includes reducing the actual income and concealing other sources of income such as rent payments and interest income.
- Cooking the Books: Many businesses practice cooking the books by engaging in fraudulent activities such as over-estimating/under-estimating the asset value, failing to maintain proper accounting records and recording incorrect amounts in the books.
- Claiming False Return: This type of activity usually includes invoicing relatives and spouses for work they did not do and increasing the expenses in order to reduce the profits and claim rebates.
- Recording Business Expense as Personal Expense: Many sole-proprietors and entrepreneurs are unsure whether the asset they are purchasing should be treated as a personal asset or for business use. While other executives use this provision to write off their personal expenses as business expenses. When filing for returns, you should maintain careful distinction between the two.
- Concealing Assets: Concealing assets and other sources of income by transferring the tax liability to non-taxable people, such as minors and the elderly.
- Conducting ‘Sham Transactions’: Many corporations disguise their transactions by naming them something else. For instance, some corporations call paying off dividends as paying off interest. In this manner, they claim tax refunds where they are not entitled to. Engaging in such transactions can raise flags in the IRS department and your corporation will be subjected to strict scrutiny.
While it is illegal to evade taxes, tax avoidance is completely legal and with planning, you can legally reduce the tax burden on you. Some of the strategies employed by qualified accountant Orlando and accounting firms in Orlando include restructuring the tax to attain the minimum marginal tax and minimizing taxable income while maximizing the deductions and credits.
Forecasting your income and expenses and planning in advance about your tax structures can also help you reduce your taxes. Project your income and expenses and start saving for the future tax burden. Some of the other measures that you can adopt are placing an automatic withholding limit on your payroll. Where tax evasion is a fraudulent activity and can cost you a trip to jail, tax avoidance is completely legal and when done with professional support, can save some of your hard earned dollars.
If you need more information about our accounting and tax services, please contact us at 407-502-2400. Freedomtax Accounting’s staff has been providing honest accounting services and tax services for 15 years. Our Orlando accounting and tax firm has its main offices in Kissimmee, FL. Our services are provided nationwide, but mainly in the Central Florida market to areas like Orlando, South Orlando, Kissimmee, St. Cloud, Poinciana, and Hunters Creek, FL. Our tax accountants and IRS enrolled agents (irs ea) specialize in corporate accounting and bookkeeping, tax services, tax preparation, back taxes help, tax debt relief, tax resolution, tax planning, itin numbers, incorporations, and non profit 501c3 tax exempt status applications.