What It Is:
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.