eli5: Are tax evasion and avoidance the same thing, and if not, what’s the difference?
In: Economics
Tax avoidance isn’t just not owing taxes; it’s taking actions that reduce your tax liability. So, putting pre-tax money into a Health Savings Account (HSA) is tax avoidance – the contributions to the account, which can only be used for healthcare expenses, are all tax deductible. Anything you contribute to it is exempted from your tax liability. This makes sense if you know you have regular healthcare expenses, as it lets you cover them from the HSA without having to be taxed on what you’d be spending for your healthcare in the first place.
Tax avoidance is entirely legal, and most of the time is done specifically with exemptions, contributions and qualified spending that is designed, under the law, to reduce your tax liability. Some of them are deliberately designed for exactly this purpose (like an HSA), and some of them, while legal, kind of exist as loopholes because they’re not being used to their intended purposes, but also not being used illegally.
Tax evasion, as mentioned already, it trying to get out of taxes that you legally do owe.
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