Investopedia Video Tax Avoidance vs Tax Evasion

knowing the difference between tax evasion and tax avoidance is important because it can mean the difference between paying lower taxes and going to prison Robert is looking for a way to lower his gross income and reduce the amount of money that he pays to the government and taxes Robert decides to engage in tax avoidance by maximizing the full amount of tax deductions and tax credits that he can take Robert maxes out his 401k contribution amount and donates to different charitable organizations so that he has the lowest adjusted gross income possible once Robert files his taxes his tax liability will be much lower than it would have been if he had not employed this strategy subsequently Robert has a lower tax bill Robert employs tax avoidance which is the use of different methods and strategies to lower the amount of taxes that he owes this method is perfectly legal it is used by accountants and tax professionals to save their clients money if Robert would have gone the route of tax evasion then he would have found himself in hot water tax evasion is an illegal practice that involves intentionally avoiding paying taxes that are owed ed Roberts shows of the tax evasion route he would not have reported all of his earnings to the Internal Revenue Service and would have ignored disclosing the interest earned on his savings account Robert would run the risk of facing criminal charges in paying substantial fines and penalties tax avoidance will allow tax payers to either lower their tax liabilities altogether or defer them to a much later date this is a much better option than tax evasion which will increase the tax liability if discovered and leave the taxpayers subject to fines and imprisonment you