Using Deductions and Reductions is 'Tax Saving'... Hiding Income or Creating False Expenses is 'Tax Evasion'

Depending on whether the act of reducing taxes is legal 'tax saving' or illegal 'tax evasion', the consequences differ significantly. Utilizing systems permitted under tax laws can lower the tax burden, but employing fraudulent methods can lead not only to the imposition of additional taxes but also to being subject to punishment under the Punishment of Tax Evaders Act.

Utilizing Deductions and Reductions is 'Tax Saving', While Recording False Expenses is 'Tax Evasion'

According to a National Tax Service video, tax saving means legally reducing the amount of tax to be paid by utilizing systems such as deductions or reductions set forth in tax laws. Representative methods include income deductions and tax credits, and in the case of business owners, they can lower their tax burden by utilizing reserves or provisions if they meet the requirements under tax law. Reserves involve reflecting a certain amount as an expense in advance to prepare for specific future expenditures or losses, while provisions are a system to reflect potential losses in advance in accounting. However, business owners cannot apply these systems arbitrarily and must meet the requirements prescribed by tax law.

On the other hand, tax evasion is the act of illegally reducing taxes by intentionally hiding income or assets or by preparing documents that differ from the facts. This includes not reporting actual income, inflating unused expenses in the books, or creating false contracts. If tax evasion is detected, in addition to the underpaid taxes, one must bear additional penalty taxes added to the original tax, and if fraudulent methods are confirmed, one may be punished according to the Punishment of Tax Evaders Act depending on the case.

Tax Audit Targets are Selected by Analyzing Discrepancies Between Reported Content and Asset/Consumption Levels

Regarding the method of selecting tax audit targets, contrary to the misconception of 'random selection', the National Tax Service explained that it determines audit targets by comprehensively analyzing reported content, taxation data, tax information, etc. Although random sample audits are legally permitted, not all audits are conducted randomly.

Tax audit targets are largely divided into 'regular selection' and 'occasional selection'. Regular selection is conducted after analyzing the taxpayer's reported content and taxation data and reviewing the appropriateness of the reported content by considering the industry and business scale. Occasional selection takes place when there are separate reasons, such as when specific suspicions of tax evasion are confirmed or when reports of tax evasion are received.

When judging the appropriateness of reported content, the National Tax Service comprehensively reviews whether there is a large discrepancy between the reported content and the actual situation, such as when the level of assets or consumption is excessively high compared to the reported income. However, the existence of such a discrepancy does not immediately lead to a tax audit, and the necessity of an investigation is determined through various data.

For business owners, the basic principle is to report sales accurately without omissions and not to process personal expenditures unrelated to the business as business expenses. Additionally, the National Tax Service advised that separating business funds from personal funds and managing supporting documents such as receipts and tax invoices well on a regular basis is a way to reduce tax risks.