{"id":354023,"date":"2022-08-19T07:44:46","date_gmt":"2022-08-19T12:44:46","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/tax\/tax-problems-audits\/tax-evasion-vs-tax-avoidance.html"},"modified":"2023-09-23T21:28:17","modified_gmt":"2023-09-24T02:28:17","slug":"tax-evasion-vs-tax-avoidance","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/tax\/tax-problems-audits\/tax-evasion-vs-tax-avoidance.html","title":{"rendered":"Tax Evasion vs. Tax Avoidance"},"content":{"rendered":"\n
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Tax Evasion vs. Tax Avoidance<\/h1>\n
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\n By FindLaw Staff<\/a> | Legally reviewed by J.P. Finet, J.D.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

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There’s nothing wrong with wanting to lower your tax bill. Where you can run into trouble is how you go about doing that. There are lawful ways to minimize tax liabilities and maximize after-tax income. However, not paying or intentionally paying less than the owed taxes is tax evasion, which is illegal.<\/p>\n\n <\/div>\n\n

Understanding the difference between tax evasion<\/a> and tax avoidance often isn’t complicated. The following information and examples will explain what activities cross the line. These could result in you facing an Internal Revenue Service (IRS) audit<\/a>, tax penalties, or even jail time for tax crimes.
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What Is Tax Avoidance?<\/h2>\r\n

While tax evasion is illegal, there are steps every taxpayer can take to reduce their tax liability. In fact, there are provisions in the federal tax code<\/a> and state law that encourage these actions to boost behaviors like saving for retirement, buying a home, or donating to charity<\/a>. Reducing your tax liability while complying with tax laws is tax avoidance. Tax avoidance can also include taking advantage of legal loopholes in the tax system to save money.<\/p>\r\n

Many people pay more state and federal income tax than necessary because they misunderstand tax laws, don’t save for retirement, or fail to keep good records. The most common means of tax avoidance is claiming all your allowed deductions and credits. For example, contributing to a pre-tax retirement fund reduces your taxable income<\/a>.<\/p>\r\n

Modern technology also makes it easy to take advantage of tax avoidance strategies. That’s because most tax preparation software products, like TurboTax, include a tax calculator that will analyze your finances and help you find ways to reduce your tax bill legally.<\/p>\r\n

Examples of Tax Avoidance<\/h2>\r\n

Federal and state tax laws provide for deductions, credits, and adjustments to your income that will lower your tax burden. High-income taxpayers often use tax professionals, such as tax attorneys or CPAs, to help them take full advantage of the legal ways to reduce future tax bills. Tax planning can reduce your taxable income in a given year. It also might lower the tax rate on that income by moving you to a lower tax bracket.<\/p>\r\n

Here are some common tax avoidance strategies:<\/p>\r\n