What is the difference between tax avoidance and tax evasion?

Tax avoidance and tax evasion are similar in the sense that they both involve ways to reduce tax liability, but they are not the same. Tax avoidance is the use of legal methods to reduce the amount of taxes paid. This includes taking advantage of deductions, deferring income, or rearranging investments or income sources to reduce taxes. Tax evasion is the illegal avoidance of taxes. It includes illegally hiding income, underreporting income, falsifying expenses, or manipulating assets to reduce taxes. Tax avoidance is a legal way to lower your tax liability, whereas tax evasion is illegal. There are significant penalties for tax evaders. Depending on the nature of the evasion, taxes may be due plus a penalty, the amount of the penalty can range from 20 to 75 percent of the owed amount. In addition, if the evasion is considered to be a criminal offense, then fines and possible jail time can be imposed. Tax avoidance is something that any business or individual can practice, as long as the rules outlined by the IRS are followed. Tax evasion is illegal in Washington, and penalties can be severe. It is very important to be aware of the difference between the two, as not following tax laws can lead to serious consequences.

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What is the difference between tax avoidance and tax evasion?

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