Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Tax Avoidance

What it is:

Tax avoidance is the legal act of minimizing one's taxes. It is not the same as tax evasion.

How it works (Example):

Practically every taxpayer engages in tax avoidance at some point in order to minimize his or her tax bill. For example, taxpayers who contribute to Individual Retirement Accounts (IRAs) before the April 15 tax deadline are engaging in tax avoidance because those contributions are deductible and thus lower their tax bills. Similarly, charitable contributions are tax-deductible and thus another way that taxpayers can lower their tax bills.

Why it Matters:

Tax avoidance is legal. Tax evasion is not.

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