Question

Tax evasion versus tax avoidance

Money Management and Tax Planning
Money management includes effective tax planning. Your financial plan should include ways to lower your tax liability so you have more money to spend, invest, or donate. The key to effective tax planning is to reduce your taxable income, rather than your gross income, through all appropriate and legally available opportunities.
The act of reducing taxes by deliberately understating income or overstating deductions is called ______
Tax evasion or tax avoidance?
Ayesha is preparing her tax return for the year and is looking at ways to save on her tax bill Ayer women ur time in the day and tended bar at night. Her daytime employer reported her income for her job, but her tips from tending bar at night were not reported to the IRS. Ayesha is thinking about leaving the tip earnings out of her income on her tax return. Is this tax evasion or tax avoidance?
Tax avoidance
Tax evasion

Answer 1

1. The act of reducing taxes by deliberately understating income or overstating deductions is called ______

Tax evasion

2. Leaving the tip earnings out of her income on her tax returns is

Tax evasion

Step-by-step explanation:

Tax evasion is deliberate reduction of gross income either by excluding, understating, omitting income, or overstating deductions. It is not legal. Tax avoidance is managing taxable income by effective tax planning (e.g. through investments, insurance, etc.) so that less tax is paid. It is legal and allowed.