Accounting

Paying taxes is not a choice, it is an obligation and what the law demands. Tax is a fee levied by the government on products, incomes or activities within the scope of its authority as a means to funding governments operating costs. Failure to pay taxes is a crime under the law and can lead to a jail term.
Generally, taxes can either be avoided or evaded. Tax evasion involves unlawfully avoiding paying the mandatory taxes due or unlawfully escaping liability for the tax.(Pennsylvania Department of Revenue, 2008). On the other hand, tax avoidance is lawful elusion of taxes by different means known to the taxpayer. Although this act is considered amoral, it is not illegal.

Keeping a log of business expenses is tax avoidance. As tax is deducted from profit after expenditure, keeping a log of business expenses makes the taxpayer account for every penny spent in the business thereby reducing the amount of tax that will be paid by the business. On the other hand, ignoring earnings from lawn mowing is tax evasion. This is because the money earned from lawn mowing is part of the taxpayers personal earnings and thus should be calculated as part of the income that will be taxed. Like the latter example, not reporting interest earned on savings account is tax evasion. As mentioned before, the interest earned on savings account is part of personal income and should be taxed by the government.

However, keeping a log of contributions to charity is tax avoidance. This is because charity donations are recorded as being deductible from personal income before the money is being taxed. On the contrary, not reporting tips is tax evasion. Tips are regarded as part of the taxpayers personal income under the law. Thus, not reporting tips to the IRS is a crime. Finally, claiming your dependents as tax deductions is tax avoidance. Claiming your dependents as tax deductions is part of what is called tax loopholes that can be used to reduce tax legally.