Difference between tax evasion and tax avoidance

Difference between tax evasion and tax avoidance
Difference between tax evasion and tax avoidance

Knowledge of finances is something everyone should have. Finance is a vast topic it involves accounting, taxes, bank account management, and many more things. One thing which is not being taught to anyone us thoroughly is taxes, many people are still unaware of how to file their tax return and what are its legalities. It's obvious we how all want to spend the least on the taxes and keep more to ourselves for our savings. But some people use illegal methods knowingly or unknowingly to save their money for taxes. Which can end them up with serious allegations. These methods are called tax evasion. Some legal methods can help you to cut down your taxes with legal actions without causing any trouble to you, these methods are called tax avoidance.

Tax Evasion and Tax Avoidance are some technical terms that are similar yet very different from each other. Here’s why:

Procedures: The main motive of both terms may sound the same, but the procedures of both tax evasion and tax avoidance are 180 degrees apart. The main difference is, tax avoidance is done through legal procedures, which don’t cause you harm.

Whereas in tax evasion, one reduces its taxes by illegal means and violating laws.

Involvement of laws: Tax avoidance and tax evasion both involves laws, one violates it and one works by finding loopholes in the law. Tax avoidance is done by taking benefits of loopholes of the formulated laws, since it is with the code it cannot be considered illegal.

Whereas tax evasion is done by intentionally hiding or misinterpreting income, this can be done by hiding or not reporting the cash income which in the end turns into black money or this can be done through hiding money in offshore accounts.

Consequences: If someone is found guilty of tax evasion by illegal means, then they can face several consequences, like; 5years imprisonment, and a fine of up to $250,000, and lifetime court rounds which will suck the peace out of you.

No one can be found guilty of tax avoidance techniques because it does not violate the code of conduct and does all the work under legalities.

Methods: Tax evasion can be done by deliberately underpaying owed taxes, keeping different sets of books, claiming false deductions without legal documents.

Tax avoidance can be done through tax shielding, this is one of the best methods to avoid taxes; it is done through claiming legal tax deductions like mortgage interest, medical expenses, charitable donations, etc.

These are some points that can help you to differentiate tax avoidance and tax evasion better. Saving more money for yourself is not bad, but it all depends on the path you’re choosing, one should hire an experienced CA to make all these tasks easy for them, the common man is mostly unaware of the tax laws and end up doing blunders in tax evasion which can ruin their life.

Consulting CA will get a whole lot easier for you and they can give you good pieces of advice like transferring your money into your partner's account to pay the lower taxes.

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