Tax Avoidance

AAA

DEFINITION of 'Tax Avoidance'

The use of legal methods to modify an individual's financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal.

INVESTOPEDIA EXPLAINS 'Tax Avoidance'

Most taxpayers use some forms of tax avoidance. For example, individuals who contribute to employer-sponsored retirement plans with pre-tax funds are engaging in tax avoidance because the amount of taxes paid on the funds when they are withdrawn is usually less than the amount that the individual would owe today. Furthermore, retirement plans allow taxpayers to defer paying taxes until a much later date, which allows their savings to grow at a faster rate.

VIDEO

RELATED TERMS
  1. Double Irish With A Dutch Sandwich

    A tax avoidance technique employed by certain large corporations, ...
  2. Tax Cheat

    An individual (or group) who, through fraud, dishonesty or avoidance, ...
  3. Bed And Breakfast Deal

    In the United Kingdom, the practice whereby the holder of a security ...
  4. Bond Washing

    The practice of selling a bond just before it pays a coupon payment ...
  5. Notice Of Deficiency

    A letter from the Internal Revenue Service that advises a taxpayer ...
  6. Audit

    1. An unbiased examination and evaluation of the financial statements ...
Related Articles
  1. Changes In Tax Legislation And Regulation
    Taxes

    Changes In Tax Legislation And Regulation

  2. Tax Tips For The Individual Investor
    Retirement

    Tax Tips For The Individual Investor

  3. Avoid An Audit: 6
    Retirement

    Avoid An Audit: 6 "Red Flags" You Should ...

  4. How The IRS Works: Functions & Audits
    Taxes

    How The IRS Works: Functions & Audits

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center