tax avoidance

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Related to Avoidance, Tax: tax evasion, Tax shelters

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 Vatican's financial watchdog agency, the Financial Information Authority, referred 17 reports to the Vatican's Office of the Promoter of Justice for possible review of crimes such as fraud, tax avoidance, tax evasion and "more serious financial crimes .
The accountant recognizes problems of tax avoidance, tax compliance and tax fairness and equity and is just as familiar with what is involved in the characteristics of a tax as are most legislators.
Increasing cross-border transparency on beneficial ownership: Given the international nature of tax evasion and avoidance, tax transparency must also extend across borders.