Tax evasion is a serious crime that can, if it results in conviction, lead an Illinois resident to spend many years in jail. It involves the willful avoidance of paying one’s taxes through illegal means of concealment. However, every year many Americans make mistakes when they file the income tax returns and commit errors that may reduce their tax burdens. These errors must be corrected but generally do not constitute tax evasion. Tax avoidance is another type of issue all together that involves the proactive planning by an individual to legally lower their overall tax obligations.
A person can practice tax avoidance by maxing out retirement and other investment plans that take money out of their paychecks pretax and place it into accounts that the person will later be able to access. Doing this lowers a person’s annual taxable income and therefore reduces their income tax burden.
Additionally, a person may utilize work deductions to lower their taxable income. When an employer does not reimburse their employee for work-related costs that worker may be able to deduct their work expenses from their taxable income and therefore lower their overall tax bill.
Finally, individuals who take out home equity loans may be able to reduce their tax burdens as the interest on such loans can be tax-deductible. That is to say, the money a person pays in interest on such a loan may be able to reduce their taxable income by the amount of money they pay in interest on their home equity loan.
Tax avoidance is something Illinois residents can do during their lifetimes and can even apply to their estate planning goals. To learn more about tax avoidance readers are reminded that they can always seek case-specific advice from local tax and estate planning attorneys.