Full implementation of the Tax Cuts and Jobs Act of 2017 have CPA firms and company accountants scrambling to reduce tax liabilities wherever possible. The best in the business are very familiar with tax avoidance strategies and use them frequently. They also work very hard to guarantee that they are not facilitating tax evasion. So what’s the difference?

The main thing separating tax avoidance and tax evasion is legality. The former is legal while the latter is not. Tax avoidance strategies are permitted by law and, quite frankly, a good idea. There is no point in paying more tax than you are legally required to pay. The other side of that coin are tax evasion strategies that clearly cross the line into illegal activity.

Why Tax Avoidance is Good

Speak about tax avoidance among a group of people with limited knowledge of tax laws and you are likely to observe a negative reaction. Tax avoidance is often seen as a way the rich get out of paying taxes while putting the financial burden on the poor and middle class. But nothing could be further from the truth.

Tax avoidance is good for a lot of reasons, not the least of which is that everyone can practice it regardless of income. Consider the individual taxpayers that visit Gurian CPA to take advantage of their tax services. Those individual taxpayers have every right to reduce their tax liabilities through every allowable, legal means – just like business owners and corporations. No individual or business entity has to pay more taxes than the law requires.

Tax avoidance is also good in the sense that tax monies do not really belong to the government. The government is an institution of the people, by the people, and for the people. That is why we call government workers public employees. They do not work for a separate entity of unknown origin, they work for us.

As such, preventing the government from confiscating and spending more tax payer money than the law calls for is a good thing. In short, legal tax avoidance means you keep more of your hard-earned money while giving the government less.

Why Tax Evasion is Bad

Speak about tax evasion among that same, previously mentioned group of people and you are likely to observe a similarly negative reaction. Most of us inherently understand tax evasion to be a bad thing. Interestingly though, a lot of people don’t understand why it’s bad above and beyond its legal status.

The fact that tax evasion is illegal is the starting point here. If you are purposely doing things in violation of the law in order to avoid paying taxes, you are lawbreaker. Getting caught and being successfully prosecuted will mean heavy fines and penalties at the very least. If your case is serious enough, it could also mean prison.

Beyond that, tax evasion is bad for another reason: it shifts the tax burden to someone else. Like it or not, the federal government has the constitutional authority to levy taxes against U.S. citizens. State governments also have taxing authority within their own jurisdictions. That’s just the way of the world.

The government has taxing authority because it needs money to carry out its business. So if a person evades taxes, the money he or she is not paying has to be made up elsewhere. Honest, law-abiding taxpayers ultimately end up paying the bill left behind by tax evaders.

Now you know the difference between tax avoidance and tax evasion. Hopefully you are practicing the former and staying well clear of the latter.

By Genaro Martin

Linda Martin: Linda, a renowned management consultant, offers strategies for leadership, team building, and performance management in her blog.