9.2. Tax Evasion and Tax Avoidance

Tax evasion is the illegal practice of not paying taxes, by not reporting income, reporting expenses not legally allowed, or by not paying taxes owed. It is considered tax evasion if you knowingly fail to report income.

Tax avoidance is the legitimate minimizing of taxes, using methods approved by the government. Businesses avoid taxes by taking all legitimate deductions and by sheltering income from taxes through better tax planning. It involves making use of the loopholes in tax laws to one’s own advantages to reduce the tax burden. Unlike Tax evasion, tax avoidance is legal practice. However, it is unadvisable as the taxpayer has defeated the intention of law maker and used this to his own advantage.