tax avoidance

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Tax Avoidance

The process whereby an individual plans his or her finances so as to apply all exemptions and deductions provided by tax laws to reduce taxable income.

Through tax avoidance, an individual takes advantage of all legal opportunities to minimize his or her state or federal Income Tax, gift tax, or estate tax. An individual may, for example, avoid federal income tax by investing a large sum of money in municipal bonds, since the interest on such bonds is not considered taxable income on which federal tax is due. Interest on the same amount of money placed in a savings account must be included as taxable income.

Tax avoidance must be distinguished from Tax Evasion, which is the employment of unlawful methods to circumvent the payment of taxes. Tax evasion is a crime; tax avoidance is not.

tax avoidance

legally reducing tax liability. Tax planning is the activity by which a taxpayer seeks to arrange his affairs so that his tax liability is minimized; avoidance of tax within the limits of tax law is perfectly legitimate. Some forms of avoidance are merely tax planning by using reliefs or exemptions, for example, by choosing tax-efficient investments. Others are convoluted and rather artificial. See TAX EVASION.
References in periodicals archive ?
The lead singer of rock band U2 was an investor in a Lithuanian shopping mall through a company based in Malta, which is also a country that foreign investors can use to avoid taxes, according to the Guardian Sunday.
The Wall Street Journal has reported that for years Bank of America Corp (NYSE: BAC) had helped customers avoid taxes through its US banking unit.
taxes, because the information submitted clearly establishes the lack of a principal purpose to avoid taxes under subtitle A or B of the Code.
After years of winking at the practice, Congress is suddenly up in arms about companies moving their headquarters to Bermuda to avoid taxes.
The study says companies have migrated to the suburbs to avoid taxes or governments perceived as unfriendly to business.
However, if the minority interest appears to be the result of a transfer made simply to avoid taxes, the discount will not be allowed.
Global Banking News-July 22, 2014--US regulators accuse Barclays and Deutsche Bank of helping funds avoid taxes
3 ( ANI ): Republican presidential candidate Mitt Romney's offshore investment strategy has not only allowed him to only avoid taxes, but he also continues to make money from the company that he quit more than a decade ago, a new report has revealed.
The guidance intends to stop the spread of an abusive tax avoidance transaction using split-dollar life insurance, in which the parties attempt to avoid taxes by using inappropriately high current term insurance rates, premium prepayments or other techniques to understate the value of taxable policy benefits.
Stanley Works has the potential to become the poster child for public outrage about overseas moves to avoid taxes," says Blumenthal.
Previously, sellers could avoid taxes only in two ways: Those 55 years old or older could take a one-time, $125,000 exemption; or they could use profits from the sale to buy a residence that cost as much or more than the previous home.