Question

Tax Planning Discuss the differences between tax planning, tax avoidance and tax fraud. What are some easy ways that a taxpayer can take advantage of tax deductions for/from AGI?

Answer 1

Features and differences between Tax evasion, Tax avoidance and Tax Planning:

1. Nature: Tax planning and Tax avoidance is legal whereas Tax evasion is illegal

2. Attributes: Tax planning is moral. Tax avoidance is immoral. Tax evasion is illegal and objectionable.

3. Motive: Tax planning is the method of saving tax .However tax avoidance is dodging of tax. Tax evasion is an act of concealing tax.

4. Consequences: Tax avoidance leads to the deferment of tax liability. Tax evasion leads to penalty or imprisonment.

5. Objective: The objective of Tax avoidance is to reduce tax liability by applying the script of law whereas Tax evasion is done to reduce tax liability by exercising unfair means. Tax planning is done to reduce the liability of tax by applying the provision and moral of law.

6. Permissible: Tax planning and Tax avoidance are permissible whereas Tax evasion is not permissible.

• Tax liability of an individual can be reduced through 3 different methods- Tax Planning, Tax avoidance and Tax evasion. All the methods are different and interchangeable.
• Tax planning and Tax avoidance are the legal ways to reduce tax liabilities but Tax avoidance is not advisable as it manipulates the law for one’s own benefit. Whereas tax planning is an ideal method.

Your taxable income is what remains after you've determined your AGI. You have a choice here: You can either claim the standard deduction for your filing status, or you can itemize your qualifying deductions.But you can't do both.