tax evasion is a big problem in the united states in fact according to the treasury
department report released earlier this month the wealthiest americans are failing to pay as much as
163 billion dollars per year in taxes okay they're not making those tax
payments and just recently a famous youtuber named omita hellcat with over 800 000 fans
was just arrested for committing tax evasion and could be going to prison for a very long time
and now many people are actually afraid that if they make a mistake on their tax return
that they could be audited by the irs and maybe even go to jail so in this video what i want to
do is clear up what tax evasion is who goes to jail for it and a lot more stay tuned
so first off number one what is tax evasion simply put it is an illegal and illegal means to avoid
paying taxes in my definition it is when someone is intentionally lying or misrepresenting their
income to the irs now on this channel of course we talk about all the time how to avoid paying taxes
and all the tips and tricks that you can use but those are always legal options and are spelled
out in the actual tax codes we would never ever tell you to do anything illegally furthermore it
is usually the people who are involved in illegal operations that are found guilty of tax evasion
because of course if they report illegal income on their taxes and that would basically be an
omission of guilt basically exposing their illegal operations so they don't report their illegal
income and that is tax evasion but just because you do have a legit income or business operation
doesn't mean you're completely safe you still need to make sure you're reporting
everything correctly to the irs if you don't want to be suspected of tax evasion but let me help
put your mind at ease for just a second because here's the truth okay very few people
actually go to prison for tax evasion in fact according to the tax evasion statistics in 2020
there were 1598 investigations of tax crime and in 2019 there were around 1500 cases again so let's
go ahead and do some math together really quickly there are roughly 1500 cases and then roughly 150
million taxpayers who have legit and legal income sources so that means that less than point zero
zero zero one percent of people actually go to prison for tax evasion now by no means by no means
whatsoever does that mean tax evasion is okay in fact the irs is trying to increase their staff
and monitor stuff like your bank accounts to catch even more tax evasion so do not
do it now moving on to number two what triggers tax evasion but really quickly before i do
if you're new to the channel hey i'm sean with life accounting the accounting company that
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about tax evasion did you do it why not come on okay thank you all right moving on to number two
what triggers tax evasion so let me go ahead and lay out the process for you
so the first thing that happens is that the irs would conduct what is called an audit which is
usually triggered by some type of letter which of course begs the question what triggers an audit
well there are many things that can trigger an audit but most commonly it would be any suspicious
errors so for example a really large charitable contribution that exceeds more than 50 percent of
your reported income could trigger an audit but an audit doesn't necessarily mean that you are
guilty of tax evasion so then what of course triggers tax evasion so when it comes to legal
sources of income there are two big things that the irs is generally on the lookout for number
one unreported income this is basically any income that you do not report on your tax return so for
example if you have a side business or some type of side hobby where you're making money and you
do not report that on your taxes that can trigger a tax investigation of tax evasion or as another
example if you sell something like a rental property that is a non-primary residents and you
do not report the capital gains that can trigger a tax investigation as well now you're probably
wondering sean how does the irs know i didn't report my income especially if i paid using cash
well the irs can see some things that you cannot which i'll talk about in just a second
but first let me mention the second trigger for tax evasion investigations try saying that three
times right which would be if you intentionally make false statements or you are intentionally
concealing records such as your bank account so this is usually like the nail in the coffin
when it comes to tax evasion because the irs is generally understandable when it comes to errors
and honest mistakes on your tax return but if they send you a letter and instead of you coming
clean about your potential mistake you instead intentionally lie about your income or lie about
your deductions then that is a clear-cut reason of why you may be suspected of tax evasion so if you
get an irs letter you're already in hot water and you need to be as accurate as you possibly can in
court responding with the irs unless you want to go to jail for tax evasion what no no no all right
so number three how does the irs catch cheaters right like what evidence does the irs have to
prove that you did not report a specific amount of income well here's the thing okay your income
is usually someone else's deduction let me say that again your income is usually someone else's
deduction let's break this down with an example so for example let's say you have a side hustle
and you get paid as a contractor well the person or the company that paid you will want to write
off their expense on their taxes to of course legally reduce their taxable income so that
company will report the contractor expense to the irs on their tax return and then hopefully give
you what is called a 1099 miscellaneous form with the exact amount you receive to report
on your tax return okay can you start to see the dilemma or the check and balance here
if the irs looks at a tax return and they see a deduction on someone's return the irs would expect
to see income on another return so it's kind of like a check and balance system that the irs has
that you may not be able to directly see even if you are paid in cash someone would still likely
report that and they should report that on their tax return to get a legit and legal deduction and
if the irs asks okay who did you pay this money to of course that person would point the finger back
at that particular contractor or employee so of course that's in the case of unreported income now
if you take a deduction of course and you cannot substantiate that deduction like you don't have
any proof of payment then that of course is the obvious sign that you're trying to avoid
paying taxes illegally as well now number four what happens if you are guilty of tax evasion
it's probably obvious by now but you are going to prison but not only are you going to prison
but you are also going to have to pay back all the taxes you owed plus a 75 fraud penalty so
the moral of the story here is prepare your tax return as accurately as possible the right way and
don't try to avoid paying taxes illegally now coming up next we have some great videos that
break down what triggers an irs audit what to do if you get an irs letter and some more tax
avoidance strategies so make sure you watch the video somewhere over here or click the playlist
button below in the description to learn more about the tax law and we'll see you over there