What is the difference between tax avoidance and tax evasion?

Tax avoidance and tax evasion are two different activities that are related to taxes. Tax avoidance is the legal practice of arranging one’s financial affairs in a way that reduces the amount of taxes owed. Tax evasion, on the other hand, is the illegal practice of purposely trying to avoid paying taxes. Tax avoidance in Virginia is legal and involves activities such as taking advantage of deductions and credits that are available through the tax code. For example, individuals may be able to reduce their taxable income by taking advantage of deductions for mortgage interest, charitable contributions, or retirement savings. Similarly, businesses in Virginia may be able to reduce their taxes by taking advantage of deductions for business expenses or tax credits for investments in research and development. Tax evasion in Virginia, however, is not legal and typically involves hiding income or assets from the government in order to evade paying taxes on them. For example, Virginia residents may try to hide income earned from sources outside of the state, such as rental or investment income. Individuals may also try to hide assets such as bank accounts, investments, real estate, or other property. Tax evasion is also often associated with activities such as underreporting income or claiming false deductions. Tax avoidance is legal while tax evasion is illegal and can result in severe penalties, such as fines, jail time, or both. Therefore, it is important for Virginia taxpayers to understand the distinction between the two and to comply with the state’s tax laws.

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What is the difference between tax avoidance and tax evasion?

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