Defintion: The use of legal strategies to reduce tax debt owed to the government. Unlike tax evasion, tax avoidance relies upon means which are in the boundaries of the law.
Tax Avoidance is often practiced by wealthy individuals and corporations. In 2009, the U.S. government reported almost 1,500 citizens with annual incomes of $1 million or more who had a net tax liability of $0 or less. Additionally, the United States Government Accountability Office performed a study showing that 55% of corporations had at least one year between 1988 and 2005 in which they did not owe taxes.
Definition: The crime of knowingly refusing to pay taxes owed to the government on income. In the United States, the crime is a felony. In most developed countries, a person who commits and is convicted of tax evasion can be fined in addition to the taxes owed or even imprisoned. Governments target tax evasion extensively and the IRS takes it very seriously.
In the United States, the total amount of under or unreported income exceeds $2 trillion, creating a tax gap of $400-500 billion. Those considered most likely to commit tax evasion in the U.S. are males under the age of 50, with earnings placing them in the highest tax bracket, and who have complicated tax returns.
Definition: A tax lien is a lien against property, such as real estate or automobiles, that allows the IRS to seize your property to pay back taxes. A tax lien will appear on your credit report and can seriously impact your credit score. Though a lien does not mean the government will seize your property, it does give them the option. It is also a declaration that in sale, bankruptcy, or foreclosure proceedings, the IRS may be able to levy money made on the value of the property to pay back taxes.
Liens may also be established by other government agencies, such as Child or Spousal Support Enforcement or the town you live in, if they deem that you have not paid money owed.
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