Knowing the difference between tax evasion and tax avoidance is important (check this link). Both of the terms are often used interchangeably, but they have disparate concepts.
So which is which? Basically, tax avoidance is legal term and tax evasion is not.
Why tax avoidance is legal?
Tax avoidance is legitimate way of minimizing taxes, using methods which are not forbidden by the law. Tax avoidance lowers your tax bill by structuring your transactions so that you reap the largest tax benefits. This is completely legal – and extremely wise.
– Taking legitimate tax deductions to minimize business expenses and thus lower your business tax bill;
– Relocation of the business to low tax country or outsource the accountancy to such;
– Minimizing taxable income.
What is tax evasion?
Tax evasion is the illegal practice of reducing or even not paying your taxes, by not reporting income or reporting expenses not legally allowed. Tax evasion could be practice by both individual and business. In business, tax evasion could occur in connection income taxes, sales and excise taxes, employment taxes and/or another state or local taxes.
Some examples of tax evasion:
– Providing false information to the tax inspector about personal and/or business income;
– Substantially understating your taxes in the tax declaration (stating a tax amount in the form which is less than the amount owed for the period you reported);
– Purposeful underpaying taxes owed.
How to avoid tax evasion?
Your best strategy is to get a tax professional to assist you with your taxes. Keep records of all income and expenses of you and your business. Keep reading articles from this site or others, more information is always positive for you.