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Tax avoidance is to avoid paying taxes with the use of legal means within the law. Tax avoidance allows an individual to apply exemptions and deductions to reduce taxable income. When filed correctly these exceptions and deductions are within the tax law. In today’s economy an individual could take advantage of legal tax avoidance cuts available to help make ends meet. Tax avoidance may be one way an individual can boost their take home pay and to protect their available funds and assets. Understanding the difference in the legality of tax avoidance is very important. When individuals realize that they can use tax avoidance to lower their taxes, they have to be careful not to cross over into tax evasion, where tax evasion is an illegal way of not paying their taxes at all, and is a criminal offense that can cause fines and prison sentences.
In order to utilize the benefits of tax avoidance, there should be a strategy in place for structuring financial transactions. The strategy should obtain the lowest marginal tax rate by:
To make use of any of these strategies, it is recommended that you estimate your personal and business income for the next few years. Working with several years of income/expense projections can help tax planning. Often these strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels.
Examples of tax avoidance methods include:
There are many other legal ways to use tax avoidance strategies. CPA's and tax attorneys can help guide you with the proper way to put the strategies in place based on your specific circumstances.