Tax Avoidance and Evasion: Concepts, Strategies, and Planning

This assignment explains the difference between tax avoidance and tax evasion using an analogy suitable for grade school children. It compares tax avoidance to taking an alternate route to avoid traffic signals, which is legal as long as it adheres to regulations, while tax evasion is like breaking the law. The assignment also discusses tax planning strategies, specifically focusing on reducing taxable income through contributions to employer-sponsored retirement plans like 401(k) or 403(b) and traditional IRAs. These contributions, made on a pre-tax basis, directly reduce taxable income, thereby lowering the overall tax obligation. The document references resources that provide further context on tax planning and the distinction between tax avoidance and evasion.

1. Pretend that you are having a conversation with a young child who is still in grade school.
You are trying to briefly explain the difference between tax avoidance and tax evasion using
words, phrases, and analogies that the young child will easily relate to and understand. How
would that conversation go?
Firstly, let's talk about preventing and dodging traffic regulations. There are couple of roads by
vehicle across city. The first is Main Street's traffic jams with various lights whereas the latter passes
in front of a playground. The safe speed is slightly smaller and the highway bends a little bit, but
there are no signals without crossroads. It prevents traffic signals to decide to take Park Side Drive.
The next light turns red when you take Main Street. At the bend you cut Laundromat into the car
park, ride to the back road exit. Making the left turn, exit the car park you turn right immediately as
the side road now has the green; you proceed on Main Street, scrubbing off your journey for
few seconds. Then you are pulled over by cops and ticketed to evade a traffic signal.
State makes dodging traffic signals unlawful for various reasons linked to inappropriate use of
parking fields to put "traction" in the scheme generated by exercises, hazards to pedestrians and
other vehicles, and failure of road safety, e.g. creating spaces between vehicles further along Main
Street to allow direct traffic from side streets and driveways.
It's the same as following a path along the playground to evade taxes. Government wants some
individuals to search for this alternate path and may find it helpful to ease Main Street congestion.
The government determines at a certain stage that too much congestion has moved to the park
highway and intervene to restrict congestion such as one-way sections, shortened roads and speed
bumps. The tax system may be amended to decrease the exploitation of some tax policy regulations.
("What's the difference between tax avoidance and tax evasion?", 2019)
Avoiding tax include explicitly unlawful activities not to pay due taxes, and would apply to activities
thinly veiled as legitimate and designed to conceal unlawful actions. Instances may include failure to
disclose money income and the use of fake companies to produce receipts for proof of non-existent
costs.
2. Describe at least one tax planning strategy you will consider implementing with respect to
your individual tax return soon (i.e. within approximately one to three years). In your own
words, explain how this chosen strategy is commonly implemented by taxpayers, and, if
possible, provide an overview of how you might tailor the strategy to your specific tax
situation (please do not divulge any personal financial information in your discussion post).
Reducing tax obligation for people annually is amongst the most significant elements of tax planning,
but it can also be a complicated method. Subsidies and deductions are sometimes ignored when
filing taxes annually, and miscalculations or mistranslations of tax rules may result in taxpayers being
more expensive than they might have negotiated. Although it is not comprehensive, the
following popular method for tax planning can assist some taxpayers reduce their taxable obligations
every year. By adding to an enterprise-sponsored pension plan or contributing to an independently
owned traditional IRA, the simplest way to decrease taxable income is. Tax relief schemes including
a401(k) or a403(b) provided by an company allow employees to add pre-tax dollars up to a total of
$19,000 for the 2019 tax year ($18,500 for 2018); for employees over the age of 50, an extra $6,000
may be added as a collection input ("Tax Planning", 2019). 403(b) additions are produced by

postponement of pay checks and give a real dollar-for-dollar decrease to the full taxable income
resulting in a significantly decreased tax obligation annually. If there is no company-sponsored
service available or an person is self-employed, instead you can make donations to a traditional IRA.
All such payments are often produced on a pre-tax basis, leading to the same immediate decrease in
taxable revenue and eventually overall tax obligation. Contributions can not surpass $6,000 for the
2019 tax year, with an additional $1,000 permitted for those aged 50 and above.

REFERENCE
What's the difference between tax avoidance and tax evasion?. (2019). Retrieved from
https://www.thebalancesmb.com/tax-avoidance-vs-evasion-397671
Tax Planning. (2019). Retrieved from https://www.investopedia.com/terms/t/tax-planning.asp