To keep more money in your pocket and avoid any trouble with the taxman, it’s key to know the difference between tax evasion and tax avoidance.

What is Tax Avoidance?

Tax avoidance is a method of reducing tax liability within the legal boundaries by exploiting loopholes in the tax laws. This involves finding creative ways to minimize tax payment while still following the rules. It may involve adjusting financial records or taking advantage of tax credits, deductions, and exemptions offered by the government. While tax avoidance was once considered lawful, it can now be considered a criminal act in certain circumstances. The ultimate goal of tax avoidance is to defer, transfer, or eliminate tax obligations.

Examples of Tax Avoidance

What is Tax Evasion?

Tax Evasion refers to the illegal act of avoiding paying taxes by means of deception or concealment. This can include hiding income, falsifying expenses, overstating tax credits or exemptions, and misrepresenting material facts. Such practices result in the reporting of an inaccurate amount of income earned. Tax Evasion is a criminal offense, and individuals found guilty may face legal penalties. It encompasses acts such as deliberate misstatement of facts, concealment of relevant documents, failure to keep complete records, and making false statements.

Examples of Tax Evasion

The difference between Tax Evasion and Tax Avoidance

Bottom line

To avoid being charged with tax evasion, it’s important to be aware of the tax laws for income and employment taxes, including legal deductions and recordkeeping requirements. A trustworthy tax professional can assist you and it is essential to keep accurate records of income and expenses, especially if you have a cash-based business. Keeping up with industry news and education can also help prevent tax evasion.