Tax evasion is the willful avoidance or underpayment of a tax. Both individuals and business entities can engage in tax evasion. There are a number of ways to evade taxes, such as not reporting taxable income and overstating the amount of applicable tax deductions and tax credits. Those found guilty of tax evasion can receive substantial fines and may also be charged with criminal offenses that can result in a person serving time in jail.
Tax evasion differs from tax avoidance, where a taxpayer is using legitimate methods to minimize taxes. For example, a person could give funds to a registered nonprofit entity in order to deduct the amount of these funds from his or her taxable income.