Question

What is the difference between tax avoidance and tax evasion?

Answer 1

Answer:

Tax avoidance is the minimization of taxes while Tax evasion is not paying any taxes at all.

Explanation:

Tax avoidance is the legitimate minimizing of taxes, using methods included in the tax code. Businesses avoid taxes by taking all legitimate deductions and by sheltering income from taxes by setting up employee retirement plans and other means, all legal and under the Internal Revenue Code or state tax codes.  

Tax evasion, on the other hand, is the illegal practice of not paying taxes, by not reporting income, reporting expenses not legally allowed, or by not paying taxes owed. eg- not reporting income source, reporting less income than actual, hiding assets etc.

Answer 2

Following are the difference between tax avoidance and tax evasion:-

• Tax evasion is the use of illegal methods of concealing income or information from the tax authorities whereas Tax avoidance is the use of legal methods of reducing taxable income or tax owed.
• Tax avoidance is structuring your affairs so that you pay the least amount of tax due whereas Tax evasion is lying on your income tax form.
• An unintentional mistake on your tax return will not turn oneself into a tax evader whereas tax avoidance is done intentionally.
• Tax evasion is a crime whereas tax avoidance is not a crime.
• Examples of tax evasion:-

(a)Ignoring overseas income.

(b)Banking on cryptocurrency.

(c)Paying for childcare under the table.

• Examples of tax avoidance:-

(a)Capitalize on tax-advantaged retirement accounts.