How unpaid taxes might land Shakira in jail...

A court in Spain last week decided Shakira should stand trial for tax evasion related to taxes the singer allegedly failed to pay while living predominantly in the country.

If convicted, she could face jail time.

A host of celebrities have run into tax troubles including Martha Stewart, Sinbad, Wesley Snipes, Toni Braxton, Marc Anthony, Willie Nelson, Nicholas Cage, Lauren Hill, and Ja Rule.

All of them have been convicted of tax evasion.

So when does not paying taxes become criminal?

When income is concealed or not reported. Simply.

Failing to file isn’t immediately criminal, but it could become a criminal issue if ignored.

Having income and intentionally not reporting it or over-reporting expenses is evasion and criminal out of the gate.

I occasionally hear stories from colleagues like the contractor who decided to build a large addition onto his personal residence and deduct all of the materials under cost of goods as if they were for customers.

That could certainly be considered criminal. An intentional act to under-report income.

So what’s the difference between tax evasion and tax avoidance?

Tax avoidance is legally reducing your taxes and taxable income using legitimate methods.

Taking all the deductions you’re entitled to, efficiently structuring your entities for lower taxes, taking advantage of retirement & insurance incentives, and making use of legal loopholes (incentives) placed throughout the tax code.

And that’s where tax planning comes in.

It’s near impossible for a business owner to study and learn all of the intricacies of the tax code. Trust me, I’ve been doing this for over 30 years and I don’t know it all.

But a systematic, proactive approach to planning is the best way to legally reduce your annual tax bill.

And you might think your CPA is already doing this. Maybe they are, but I doubt it.

I’ve trained and coached thousands of accountants. I can tell you its a super rare CPA that has a process in place to plan in advance and lower your taxes for this year.

We meet with most of our tax planning clients quarterly, to update strategies, revise projections, and dial in what the actual tax liability is going to be long before year end.

There’s no reason your 2nd largest cash expense for your business should be a guess.