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.

Collins Dictionary of Law © W.J. Stewart, 2006

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References in periodicals archive

It added: "The UK with its corporate tax haven network is by far the world's greatest enabler of corporate tax avoidance and has single-handedly done the most to break down the global corporate tax system, accounting for over a third of the world's corporate tax avoidance risks.

UK world's 'greatest enabler of corporate tax avoidance'

Tax avoidance is the arrangement of one's financial affairs to minimise tax liability within the law while tax evasion is the illegal non-payment or underpayment of tax.

Tax avoidance is lawful, not evasion - Kalonzo

When firms have weak governance mechanisms, corporate tax avoidance is likely to coincide with more opaque information environments in which entrenched managers divert firm resources for their own private benefits, manipulate earnings, and hoard bad news about the firm (Lev and Nissim, 2004; Hanlon, 2005; Hanlon and Heitzman, 2010).

Corporate Governance, Tax Avoidance, and Financial Constraints

Tax avoidance is about arranging your affairs in such a way that you pay as little tax as possible.

Random talk avoids issue

Why ever do people think a Tory Government will do anything meaningful about tax avoidance when their MPs benefit and their party receives millions of pounds from super-rich donors?

Tax avoidance is cheating the UK

The newspaper pointed out Wednesday's treaty was part of an initiative launched by the G20 group of leading nations to tackle base erosion and profit shifting, that is tax avoidance strategies involving the shifting of profits to low or no-tax jurisdictions.

Corporate tax avoidance gets harder

HMRC has stepped up its investigations after several public figures, including actors, musicians, sports stars and comedians, were named as benefi-ciaries of tax avoidance measures.

Tax probes net Treasury PS494m; In Brief

IRS May Allow a Transaction That Does Not Have a Principal Purpose of Tax Avoidance Under Sec.

The principal tax-avoidance purpose: a poison pill for inversions?