Tax season is officially in full swing! And after two years of deadline changes, tax day just might sneak up on you. While there is a very slight delay this year, you don’t have until mid-July or even mid-May this time around. Because of the federal holiday on April 15, tax day and the tax filing deadline shifted to April 18, 2022. 

Sure, you could file an extension to adjust your filing deadline to October 15, but your payment is still due by the April date. If you choose to go this route, you must also complete the extension in a timely manner. But having a little more time definitely doesn’t mean you should wait to get started. There’s no time like the present! 

If you’re not just dreading tax day but also wish you could skip out on paying some taxes, I have some not-so-secrets to share with you. So you’re wanting to keep more of your hard-earned funds in your pocket instead of the U.S. government’s … but you’re wondering what’s legal. You want to stay on the right side of the law, of course, and keep the Internal Revenue Service (IRS) from coming after you for even more in the form of penalties. And you can probably imagine that there’s a big difference between tax avoidance and evasion! 

But did you know that IRS encourages many tax avoidance measures through legal “loopholes” like deductions and credits? Lucky for you, tax is one of my absolute favorite areas of personal financial planning, and I’m here to tell you all about ways to avoid it. Or I could just do your individual income tax preparation for you. But if you want to take a look under the hood of the tax machine, allow me to cordially invite you to what I like to call tax land.

We’ll head that way in a moment. But first, here’s your official reminder to begin …

Your 2021 Tax Prep Process

Another not-so-secret (if you didn’t already know): Your individual income tax return is included in your comprehensive services package at no additional cost. And don’t forget to respond “Yes” to audit representation when you complete your engagement letter. That’s fully included, too. 

Never heard of this “audit representation”? Wondering what an “engagement letter” is? Reach out to hello@fpfoco.com to let us know, and we’ll resend your tax prep invitation with all the details. 

Now back to tax land …

Tax Avoidance Vs. Tax Evasion

The difference is certainly big, but the explanation doesn’t have to be. Put simply, tax evasion is illegal while tax avoidance is completely legal.

Each year after tax season ends, the IRS reveals a “Dirty Dozen” list. It’s a compilation of the biggest schemes that IRS agents saw that year, and the agency releases the list to help taxpayers avoid falling victim to the same scams next year. 

It’s also a guide to the top tax evasion methods to avoid. Not all tax evaders are scheming fraudsters, after all. Tax laws are complex, and regular folks make mistakes and errors of judgment, too. Check out Regina’s article on last year’s Dirty Dozen for details, specifically the section toward the bottom on “Schemes That Persuade Taxpayers Into Unscrupulous Actions” to see what the IRS picked up on last year. And don’t stop there! Read on for more.

Encouraging Avoidance Taxtics

Now that you know where to go to spot scams, get ready to take advantage of some tax avoidance measures. Why go the extra mile? Because tax avoidance has multiple upsides: These techniques allow you to delay or avoid tax entirely while setting yourself up for success now and in the future. 

Here are some actionable ways to avoid taxes:

Save for retirement in your IRA or employer-sponsored retirement plan.

Put your health savings account (HSA) to work for you.

Commit to multi-year tax planning, including grouping your charitable contributions.

Maybe the most obvious: Use available tax deductions and credits. Don’t forget to get your 2021 tax preparation process started! I’ll thoroughly check these out so you don’t miss out.

Evading Tax Evasion

As you work to legally avoid taxes, keep an eye out for common scams to sidestep. 

Report all income correctly and in full. Did you know? This includes income earned through illegal measures … but I suggest you avoid those, too.

Self-employed? Keep the personal personal and the business business. Separation is simpler to substantiate in the event of an audit. 

Just because “it’s never been a problem” doesn’t mean it won’t be this year or in the future.

If you pay employees, report it! Depending on the situation, this also includes household employees, like your nanny.

And don’t forget that cryptocurrency transactions are reportable, too!

Honesty is the best policy, and that includes begging the IRS for forgiveness if you’ve made a mistake in the past. If you have questions about how to report income or whether a tax avoidance technique could be viewed as tax evasion, just ask!

Substantiate It!

Does this sound familiar? “I don’t need it, but you should keep it with your records.” Maintain your records to prove your income, deductions, payments, credits, and so on.

Speaking of substantiation and the records you’ve been accumulating, the end of tax time is also the perfect time to do a little spring cleaning and get your financial house in order. Just let us know if you have questions about what to shred and what to keep on hand. 

As you read this piece, did you realize that you missed out on tax avoidance measures this year? It’s not too early to start tax planning for 2022! We’ll proactively invite you to do a little tax planning in May and again as 2022 gets close to coming to an end. And whether you’d like to better understand what goes into your income tax equation (and why it comes out the way it does) or you have questions, you can always reach out.