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Simple English definitions for legal terms
tax avoidance
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A quick definition of tax avoidance:
Term: TAX AVOIDANCE
Definition: Tax avoidance is when someone uses legal ways to plan their taxes in order to pay the least amount of taxes possible. This is different from tax evasion, which is when someone breaks the law by not paying the taxes they owe.
A more thorough explanation:
Definition: Tax avoidance is the legal act of using available tax-planning opportunities to reduce the amount of taxes one owes. This is different from tax evasion, which is illegal.
Example: One example of tax avoidance is contributing to a retirement account, such as a 401(k) or IRA. By doing so, an individual can reduce their taxable income and therefore pay less in taxes. Another example is claiming deductions for charitable donations or business expenses.
These examples illustrate tax avoidance because they are legal ways to reduce one's tax liability. By taking advantage of these opportunities, individuals can pay less in taxes without breaking any laws.