What distinguishes tax avoidance from tax evasion?

Tax avoidance is characterized by the legal strategies individuals and businesses use to minimize their tax liabilities. This can include taking advantage of deductions, credits, and tax planning strategies that conform to the law to reduce the amount of tax owed. It operates within the framework of the tax code and aims to lower tax burdens through lawful means.

On the other hand, tax evasion involves the illegal practice of not paying the taxes owed. This can take various forms, such as underreporting income, inflating deductions, or hiding money and assets. Tax evasion is an act against tax law and can result in severe penalties, including fines or imprisonment.

This distinction is crucial, as it highlights the difference between legally seeking to minimize tax burdens (tax avoidance) and illegally failing to comply with tax obligations (tax evasion). Understanding this difference is essential for individuals and businesses to engage in responsible tax planning.