Legal Definitions - tax avoidance

Definition: Tax avoidance is the legal act of using available tax-planning opportunities to reduce the amount of taxes one owes. This is different from tax evasion, which is illegal.

Example: One example of tax avoidance is contributing to a retirement account, such as a 401(k) or IRA. By doing so, an individual can reduce their taxable income and therefore pay less in taxes. Another example is claiming deductions for charitable donations or business expenses.

These examples illustrate tax avoidance because they are legal ways to reduce one's tax liability. By taking advantage of these opportunities, individuals can pay less in taxes without breaking any laws.