Tax Avoidance and Evasion Scenarios

How do tax avoidance and tax evasion impact other taxpayers and the economy? Why is it important to maintain fairness?

• They lead to increased tax rates for compliant taxpayers and can harm public services.

• They have no impact on other taxpayers or the economy.

• They result in a surplus of government funds.

• They encourage more people to pay taxes.

Tax evasion is an illegal activity in which a person or entity deliberately avoids paying a true tax liability.

• TAX EVASION

• TAX AVOIDANCE

It refers to the use of legal methods to minimize the amount of income tax owed by an individual or a business.

• TAX EVASION

• TAX AVOIDANCE

It must be intentional, consisting of deception wilfully and deliberately done or resorted to in order to induce another to give some legal right.

• TAX EVASION

• TAX AVOIDANCE

Taxpayer lawfully arranges its affairs to minimize taxes by utilizing the loopholes in the tax law.

• TAX EVASION

• TAX AVOIDANCE

A small business that deliberately NOT FILING tax returns is an example of ________

• TAX EVASION

• TAX AVOIDANCE

Brooke donates money to a non-profit organization and reports a tax deduction for the amount of her charitable contribution. Is this legal or illegal?

• Legal

• Illegal

Stephen works as a server at a local restaurant where he receives cash and credit card tips as part of his income. At the end of his shift, he chooses to report his credit card tips, but not his cash tips.

• Legal

• Illegal

Kevin donates $10,000 to a charitable organization in addition to volunteering from time to time. He reports the $10,000 donation, plus an additional $5,000 (what he would have made at his job if he wasn’t volunteering) on his taxes.

• Legal

• Illegal

Angie, a software engineer, frequently adjusts her 401(k) contributions, sometimes reaching the maximum annual limit. She claims these contributions as a deduction on her taxes.

• Legal

• Illegal