Understanding Tax Evasion

What is tax evasion?

• A legal way to reduce taxes

• An illegal practice of not paying taxes

• A government tax incentive

• A method to increase tax revenue

Which of the following is a common example of tax evasion?

• Reporting all income to tax authorities

• Keeping business off the books by dealing in cash with no receipts

• Paying taxes on time

• Using a certified accountant for tax filing

Concealing the true state of financial affairs from tax authorities is known as:

• Tax evasion

• Tax planning

• Tax deduction

• Tax exemption

List one method of tax evasion mentioned in the text.

• Underreporting income

• Overstating deductions

• Using offshore accounts

• All of the above

Which of the following is a common example of tax evasion?

• Reporting all income to tax authorities

• Not reporting or under-reporting income to the tax authorities

• Keeping detailed records of all transactions

• Paying taxes on time

Which of the following practices involves keeping business off the books?

• Using credit cards for all transactions

• Keeping business off the books by dealing in cash or other devices with no receipts

• Reporting all cash transactions

• Issuing receipts for every transaction

What is an example of hiding assets in tax evasion?

• Investing in local banks

• Hiding money, shares, or other assets in an offshore bank account

• Declaring all assets to tax authorities

• Using assets for business purposes

What does misreporting personal expenses as tax-deductible business expenses refer to?

• Correctly categorizing business expenses

• Misreporting personal expenses as tax-deductible business expenses

• Reporting personal expenses separately

• Paying taxes on personal expenses

What is tax avoidance?

• Using illegal methods to reduce tax liability

• Using legal methods to reduce tax liability

• Not paying taxes at all

• Increasing tax liability

Credits are dollar-for-dollar reductions in your tax liability. It directly decreases the amount of taxes you owe, unlike a deduction, which only reduces your _________.

• taxable income

• tax refund

• tax credits

• tax rate