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Lets get some basics out of the way. What is tax avoidance? Is tax avoidance different from tax evasion? Can you go to jail for tax avoidance or tax evasion?
Everybody hates taxes and there is nothing wrong that. If you wish to pay as little tax as possible, it is important to understand that there are legal ways too to avoid taxes. The term 'tax avoidance' refers to all the things you can do to reduce your taxes, or in other words, tax avoidance helps you to get maximum income after paying off your taxes. 'Tax evasion' is all the things you do to not pay your taxes. Tax evasion is illegal and there could be seriouis consequences for those who are caught evading paying taxes and punishment for tax evasion could range from hefty fines to jail terms.
There are a number of ways you can avoid paying your taxes and maximize your after-tax income. The good news is that there are a number of legal ways to avoid paying taxes.
Taxes can be avoided by doing a number of simple things which are mostly overlooked, for example, using home equity (which, again may be subject to terms and conditions), opting for a Health Savings Plan, increasing your retirement benefits and more. For the purpose of this article, we will not be getting too deep in to these options, for now.
Tax evasion is rampant among corporates, and many countries have enacted special laws to deal with such cases of tax evasion among multi-national companies or enterprises. Some have reduced taxes to encourage voluntary compliance while others have enacted stringent laws to deter tax evasion.
Another term we might need to be familiar with is something called 'underground economy'. This term refers to the business transactions that are not reported to the tax authorities and therefore, not taxed. Most of such dealings are usually illegal.
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