What is the difference between tax evasion and tax avoidance?
Tax evasion and tax avoidance are two different terms related to taxes. Tax avoidance is the legal use of deductions, exemptions, and other legal tools to reduce the amount of tax owed. Tax evasion is the illegal practice of not paying taxes that are owed. In Pennsylvania, tax avoidance is legal and can reduce the amount of taxes an individual or business must pay. Various strategies are used to reduce the amount of taxes owed, such as taking advantage of deductions, exemptions, and credits. For example, businesses may deduct certain expenses from their tax bill, such as employee benefits, depreciation, and interest payments. Individuals can also take advantage of deductions, exemptions, and credits by claiming deductions for dependent care, charitable donations, and student loan interest. Tax evasion is illegal in Pennsylvania and can result in serious penalties. Tax evasion includes failing to file tax returns, fraudulently claiming deductions, or underreporting income. The Internal Revenue Service (IRS) has an enforcement unit dedicated to prosecuting cases of tax evasion. Generally, the penalties for tax evasion include fines, back taxes, and jail time. The key difference between tax evasion and tax avoidance is that tax evasion is illegal while tax avoidance is legal. Tax avoidance makes use of lawful methods to reduce tax liability, while tax evasion involves deliberately disregarding the law. Both tax evasion and tax avoidance have the same ultimate goal, which is to reduce the amount of taxes owed. However, only tax avoidance uses legal means to achieve this goal.
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