Your Tax Question - 070

Dear John, What is the difference between tax-avoidance and tax-evasion? Sincerely, Hal
---
Hi Hal,

Tax-avoidance is the legal use of the tax law to work your taxes to your best advantage while tax-evasion is doing things illegally that is not specifically allowed by the tax law to your own advantage.

An example of a legal tax-avoidance tactic is when a business bills a customer. If a cash method business does work for a person in December 2010 but does not bill that person until January 2011 to avoid getting the payment in 2010’s tax year. Then that is a legal method of avoiding paying taxes (for 2010 at least). However, if that same business just does not report the payment and pockets the cash – that is evading the taxes and that is illegal.

I hope that helps,
John