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The difference between tax avoidance and tax fraud

When the Internal Revenue Service (IRS) conducts audits on businesses, they are doing so to verify whether any fraudulent activity has taken place. Many business owners worry about getting into trouble with the IRS because they know that they have implemented techniques to avoid taxes in the past.

However, even if you have avoided taxes in the past, this does not mean that you have engaged in any illegitimate or illegal activity. Tax avoidance is, in most cases, simply a strategic way for businesses to operate. This is because there are many ways that businesses can take advantage of rules and exemptions in the federal tax code. However, some behavior might be considered fraudulent. Knowing the difference between tax avoidance and tax fraud is key in this situation.

What is tax avoidance?

Tax avoidance includes any behavior that seeks to minimize tax obligations by engaging in certain schemes that enable this. For example, as a business owner, you will almost certainly be utilizing work deductions for your business expenses to lower your tax obligations. If you are only deducting expenses that are considered ordinary and necessary, you will be engaging in tax avoidance.

What is tax fraud?

Tax fraud is a crime, and it includes intentional activity that seeks to conceal the truth from the IRS. Fraudulent activity regarding tax reporting can include underreporting income, claiming exemptions that you are not entitled to and concealing certain documents from the IRS.

If you are worried about being accused of tax fraud in New York, it is vital that you do not underestimate the importance of taking swift action.

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