Have you ever been tempted to "fudge a little" on your tax return because your tax bill is higher than your bank balance?

I have yet to meet a small business owner who has not complained about the amount of tax small businesses pay. Being a small business owner myself, I agree it does seem like we get the short end of the stick sometimes. Throughout the year and especially at tax time we try to think of ways to legally reduce our tax liability (tax avoidance); however, sometimes people find the temptation to "fudge" the truth (tax evasion).

Tax avoidance is, of course, standard practice and any good accountant will help you "avoid" paying taxes within legal limits. However, tax evasion is a criminal activity that can carry some pretty stiff penalties.

Individual taxpayers comprise the majority of the "cheaters" usually attempting to underreport their income. For example, the IRS claims that waiters and waitresses underreport their cash tips by an average of 84 percent! However, small business owners are also frequent offenders by trying to turn personal expenses into "business" deductions, with widespread abuse in areas such as car expenses, meals, entertainment, etc.

The uncomfortable thought of an IRS audit and the natural tendency to be honest is enough for most people to file their taxes without fudging. The IRS will quite often give most taxpayers the benefit of the doubt. They are aware the tax code is quite complicated, and when errors are found, the correct tax amount, some interest, and late payment penalties are assessed. However, even honest mistakes can cost an additional 20% penalty; and outright tax evasion can cost 75% in civil penalties, criminal penalties of $500,000; and of course, time in federal prison.

ERWestjohn works hard to minimize the tax burden for our clients, but remember, we will all be happier outside of "the pokey".