Tax Avoidance
Candlefocus EditorTax credits provide a dollar-for-dollar reduction in an individual’s tax bill. For example, the general tax credit for all taxpayers is set as 15% and there are also special tax credits for certain behaviors. For example, individuals with children can take the child tax credit and people who are maintaining their homes can take home tuition credits.
Deductions are amounts taxpayers can subtract from their taxable income before they calculate their taxes owed. Common deductions include those for charitable contributions, home mortgage interest and taxes, and medical expenses.
Exclusions are amounts that are completely exempted from being taxed. Among these exclusion are contributions to certain retirement accounts, and in some cases, health savings accounts.
Finally, loopholes are methods taxpayers use to get out of reporting certain income or taking advantage of certain deductions. Loopholes are often created by misinterpretations or gaps in the tax code, or by taking advantage of the system for the benefit of the taxpayer. However, tax laws are constantly changing and loopholes often close once the discrepancy has been identified.
Tax avoidance is legal and provides taxpayers with relief from the strain of income taxes. While it may be tempting to rely on tax avoidance, taxpayers should be wise in their decisions. Taxpayers should always ensure they are fully compliant with all relevant laws before taking any tax breaks.