Episode 34: In this episode, Timalyn discusses the seemingly controversial topic of tax evasion vs. tax avoidance. These terms have very different meanings, although some people mistakenly use them interchangeably. She'll explain the terms and how to help you understand whether you're attempting to do something illegal, or extremely (legally) beneficial.
Tax avoidance is a legal strategy used to minimize your tax liability. The bulk of today's episode will explore tax evasion. She will discuss the underground economy and why you need to stop participating in it. You could go to prison and be required to deal with your back tax issues.
Tax Avoidance
You can think of tax avoidance as legal steps you can take to reduce your tax liability and to maximize your after-tax income. Timalyn begins with the step of investing in a tax planner to help you with a strategy to minimize your taxes. This is classified as tax avoidance and it's perfectly legal. Timalyn lists some common tax avoidance tactics:
● Claiming your home office deduction as a business owner
● Itemizing your mortgage interest as a home owner
● Itemizing charitable contributions
Common but Illegal Tactics that Are Considered Tax Evasion
● Paying someone in cash so they don't have to report taxable income
● Receiving cash payment and not reporting the taxable income
● Paying a babysitter in cash, but not issuing a 1099 if required
● Requesting to be paid in cash so you "don't have to report it"
Remember, the IRS wants you to report anytime money is exchanged for goods or services. We have a voluntary compliance system. The IRS relies on you to perform your civic duty.
Now, this may seem controversial to some (or many), but remember, Timalyn's goal is to fill the tax literacy gap one taxpayer at a time. She's offering this advice to help you to better understand taxes and to help you to stay out of trouble with the IRS.
Timalyn provides a tremendous amount of free information on her podcast and on her YouTube Channel. If you'd like personal advice, based on your specific situation, you can book a paid consultation with her.
The Underground Economy
Surprisingly, many of us are probably participating in the underground economy without thinking, or realizing, we're doing it. Consider these everyday activities:
● Selling or buying something at a garage sale
● Paying cash or accepting cash for tutoring
● Paying cash or accepting cash for raking leaves or shoveling snow
The IRS knows these activities happen, but they can't really track it. However, some people purposefully take advantage of the activities to avoid paying taxes. If the IRS proves that you have engaged in tax evasion, they will assess penalties in addition to the back taxes owed.
Tax Evasion
This is defined as the failure to report income or the deliberate underpayment of taxes. If you are a W2 employee, taxes are normally deducted from your paycheck, based on your W-4 . If you deliberately complete your W-4 without having any taxes withheld, it's considered tax evasion.
If you are a traveling nurse who will make 6-figures or more in a tax year, you should definitely make sure you are not going "exempt" on your W-4. It's deliberately underpaying your taxes.
If the IRS pursues and proves you are committing tax evasion, you will be forced to pay your back taxes and penalties. However, Timalyn explains that you can also face up to 5 years in prison. Is it really worth the risk?
Timalyn reminds us that Al Capone was ultimately convicted of tax evasion, because they were having problems convicting him on other charges. He was sentenced to more than 5 years because they were able to add additional charges. Martha Stewart and Willie Nelson were both penalized for crimes related to tax evasion. Actors Nicolas Cage and Wesley Snipes also ran into legal problems involving taxes.
Timalyn also provides the example of a North Carolina man sentenced to a 36-month prison sentence for tax evasion. He didn't file individual tax returns for 20 years. He fraudulently filed W-4s that falsely claimed he was exempt from federal and state income tax withholdings.
You May Not Be Required to File Federal a Tax Return
There are some circumstances in which you may not be required to file a federal return. Some of these include:
● You only receive social security income and no other sources of income
● Your earned income is lower than the standard deduction and you have no other sources of income
By the way, if you failed to file a federal tax return you were required to submit, you may have forfeited your right to any refund that may have been payable to you, based on the length of time that has elapsed.
Remember, if your tax returns are late by 5 months or longer, you could be assessed a Failure to File penalty of up to 25% of the tax liability. Under specific circumstances, you may be eligible for Reasonable Cause Penalty Abatement, which erases the penalty.
If you have unfiled tax returns and you know you owe taxes, you'll be assessed with the Failure to Pay Penalty. You need to seek out an experienced, qualified tax professional to help you with your situation. In Episode 33, Timalyn explains Tax Representation and how it can help you.
The bottom line is that it's time for you to be proactive in resolving your tax debt issues. As Timalyn mentioned early in this episode, she encourages you to review the free information she's provided on YouTube and in the previous episodes of this podcast. If you're ready to talk about your options, book an appointment with Timalyn. There's link in the below paragraphs. The IRS is serious about tax debt. Timalyn Bowens is serious about helping you to resolve it.
Please consider sharing this episode with your friends and family. There are many people dealing with tax issues, and you may not know about it. This information might be helpful to someone who really needs it. After all, back taxes shouldn't ruin their life either.
As we conclude Episode 34, we encourage you to connect with Timalyn on social media. You'll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.
Remember, Timalyn Bowens is America's Favorite EA and she's here to fill the tax literacy gap, one taxpayer at a time. Thanks for listening to today's episode.
For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .
If you have any feedback, or suggestions for an upcoming episode topic, please submit them here: https://www.americasfavoriteea.com/contact.
Disclaimer: This podcast is for informational and educational purposes only. It provides a framework and possible solutions for solving your tax problems, but it is not legally binding. Please consult your tax professional regarding your specific tax situation.
