Chapter 6, Problem EFCT

To determine

Why might people be willing to sacrifice dollars to avoid “feeling bad” about floating tax laws?

Concept Introduction:

Tax avoidance can be described as using tax reliefs and allowances in a way in which they were not in

tended to be used. Tax avoidance may also involve the re-labelling or re-characterisation of a transaction which was undertaken primarily to claim a tax advantage, and not primarily for business reasons. Tax avoidance often involves contrived, artificial transactions that serve little or no purpose other than to give rise to a tax advantage.

Some Examples of Tax Avoidance: 

• Taking legitimate tax deductions  to minimize business expenses and thus lower business tax bill.
• Setting up a tax deferral plan  such as an IRA, SEP-IRA, or 401(k) plan to delay taxes until a later date.
• Taking tax credits  for spending money for legitimate purposes, like taking a Work Opportunity Tax Credit for hiring workers in your business. 
• By finding a way to avoid paying taxes by finding a hole in the tax code is tax avoidance, not evasion. Accelerated depreciation is one such example.
• Getting a competent, honest tax expert can save one from going over the line to tax evasion.