Legal Definitions - tax loophole

A tax loophole is a way to legally avoid or reduce income taxes by taking advantage of an ambiguity, omission, or exception in the tax code. It allows taxpayers to avoid or reduce taxes without breaking any laws.

• A company may set up a subsidiary in a country with lower tax rates to avoid paying higher taxes in their home country.
• A wealthy individual may donate money to a charity to receive a tax deduction, even if the donation was not made for charitable reasons.

These examples illustrate how tax loopholes can be used to legally avoid or reduce taxes. However, some people argue that these loopholes are unfair and should be closed to ensure that everyone pays their fair share of taxes.