Tax Evasion v. Tax Avoidance
Here is an interesting news from the IRS. They are about to launch a new audit surge that is geared towards curving tax evasion. This brings up a couple of vocab words that are often confused:
Tax Evasion- Illegally under reporting income or increasing deductions in order to not pay taxes.
Tax Avoidance- Legally structuring transactions and income in a matter to avoid taxation.
Often both words come across as quite negative. But the fact is, tax avoidance is not illegal and is one of the primary job purposes of tax professionals. The I.R.C. (Internal Revenue Code) is packed full of things people and business can do to avoid taxation: a few would be state and local bonds, long term capital gains, S-Corp status and charitable contributions. I am not sure how often these terms come up in conversation, but now if they do, you have a response to them. The article also alludes to the gap between tax monies paid and not paid which brings up another interesting about paying taxes, but that will be another day.
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