For example, if you succeed in reducing your income, social security, sales or property taxes, you are likely to have a larger estate when you die and thus a larger estate tax or inheritance tax. Tax Avoidance and Tax Evasion Tax evasion is a term that has come to mean that a taxpayer is using illegal means to reduce his or her taxes. This may involve non reporting of income or other taxable amounts or it may simply involve the non-payment of the taxes due. Whatever the method, if it isn t sanctioned by the law, it s illegal, and is called tax evasion . Tax evasion is generally a felony, which can subject you to some time in the government s free hotel - also known as jail.
Tax avoidance is a phrase that has come to mean any legal method of paying less taxes.
Generally, this means utilizing sanctioned exemptions, deductions or other loopholes in the law. The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether to avoid them, by means which the law permits, cannot be doubted. There are basically five ways that taxpayers deal with their tax burdens. Those who can afford the cost will attempt to buy the support of the politicians to enact obscure changes to the law that will have a beneficial impact on the contributor. The second is used by those who can t afford to buy their own tax breaks so they join with others who are similarly situated to lobby their elected representatives for some specific tax relief.