Tax Avoidance vs. Tax Evasion

Years ago I was taught the difference between "tax avoidance" and "tax evasion." Tax avoidance is the practice of avoiding paying too much tax; tax avoidance is legal. Finding tax "loopholes," where you can use existing laws to your advantage, is an example of tax avoidance. Tax evasion, on the other hand, is not paying your taxes by illegal means. Tax evasion is what sent Al Capone to prison back in the 1930s. As a business owner, you can avoid paying too much tax in several ways:

• Understand the tax laws. This is difficult. It means reading the Internal Revenue Code, which is pretty dense and hard to decipher. If you want to go to the source, you can access the IRS tax code. An example from the Federal Register, August 2007, discusses "reportable transactions."
  
• You can ask the IRS directly. Topic 101 provides information on tax assistance, IRS toll-free tax lines, walk-in assistance, and outreach programs.
  
• Or, you can ask your tax preparer or adviser to keep track of tax law changes for you.
  
• Of course, you can use web sites like this one and other About.com sites to keep up with changes.