Nobody enjoys paying taxes. Not only can it be annoying, but it may feel frustrating to watch a significant amount of your money disappear. If you run a business, you may try your best to find loopholes to get out of paying taxes. Thankfully, there are legitimate and legal ways to decrease your corporate tax bill.
However, it is crucial to understand the difference between tax avoidance and tax evasion. If your corporation partakes in tax evasion, you may face criminal charges for tax fraud. Here is a recent example of tax fraud to help you understand the important distinction.
Construction equipment manufacturer accused of tax and accounting fraud
Caterpillar, which is known for making heavy equipment and machines such as tractors, bulldozers and excavators is taking a hit for partaking in fraudulent tax practices. According to a report by a Dartmouth College professor, the company did not report billions of dollars and received billions of dollars in funds. The reason for Caterpillar's failure to comply with financial and tax reporting rules was to keep its stock high.
Things did not turn out well for the heavy machinery manufacturer. Along with law enforcement officials raiding its corporate headquarters and becoming the focus of an investigation, the company took a hit on the stock market. This is a prime example of a company going too far in attempts to decrease tax penalties.
The difference between avoidance and evasion
If you do not want to fall into the same trap as Caterpillar, it is imperative to avoid unlawful tax practices. It is illegal if you go further than simply strategically avoiding taxes. If you evade payment or assessment through under-reporting income, failing to file tax returns, underpaying taxes or taking unearned deductions so that the IRS cannot determine your tax liability, you may face fines and imprisonment.
While the corporate tax rate in the U.S. may be high, it is important to follow the law.