What is the difference between tax evasion and tax avoidance?

Tax evasion and tax avoidance are terms that are often used interchangeably, but in the United States, they have quite different meanings and consequences. Tax evasion typically refers to illegal activities designed to avoid paying tax liabilities. In North Carolina, this includes activities such as transferring incomes or assets to a foreign country to avoid paying income tax, or failing to report income altogether. If convicted of tax evasion, individuals face hefty penalties including fines, jail time, or both, and the penalties for businesses can be even more severe. Tax avoidance, on the other hand, is a form of legal tax management, and refers to activities designed to reduce an individual or business’s tax liability. For example, if a business decides to set up shop in a country with a lower corporate tax rate, it is participating in tax avoidance. Tax avoidance is not illegal in North Carolina, and can be a useful tool for businesses in order to maximize profits and reduce tax liabilities, while still abiding by the laws and regulations of North Carolina’s international tax law.

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What is the difference between tax evasion and tax avoidance?

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