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.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.

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
References in periodicals archive ?
With IRC section 770 1 (1), as added by the Revenue Reconciliation Act of 1993 (RRA '93), Congress bolstered the IRS's ability to prevent what was considered to be unwarranted avoidance of tax through multiple-party financial engineering.
Not the actual avoidance of tax, just the reporting of it." Gary, a Tory supporter who lives in David Cameron's constituency of Witney, Oxon, also used his Twitter feed yesterday to reveal that he had just come back from "seven productive weeks in the US" and has been working on a Broadway musical.
The Foreign Account Tax Compliance Act (FATCA) addresses the avoidance of tax by US persons overseas and places a heavy burden of tax reporting and compliance onto financial institutions.
"Individuals and businesses must pay their fair share." Britain last month announced a campaign against "tax dodgers" and "cowboy advisers" to claw back Au2 billion (2.4 billion euros/$3.2 billion) a year, after lawmakers alleged that multinationals were involved in "immoral" avoidance of tax.
He said: "Although the avoidance of tax is legal clearly it is not socially responsible.
Its intention is that HMRC will be able to challenge arrangements whose main purpose is the avoidance of tax.
When was the last time anyone heard of prosecution of tax evaders or the legal avoidance of tax?
It is possible to replace any existing share options with EMI options if the new grant is for the purpose of recruiting or retaining staff and provided one of the main purposes is not the avoidance of tax.
(58) A "disqualified asset" is any property or right to property transferred to the requesting spouse if the principal purpose was the avoidance of tax or payment of tax.
The avoidance of tax on interest on cash using stock lending arrangements or noncommercial terms.
These will be paid for from three main sources: tax payments by oil companies will be accelerated, avoidance of tax by companies and wealthy individuals will be targeted more robustly, and stamp duty relief on commercial property in disadvantaged areas will be abolished.