Tax avoidance and evasion schemes - Assignment Example

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Tax avoidance and evasion schemes

The government has made tax evasion and avoidance one of its key priorities so as to reduce the deficit and boost the exchequer (Alan 2011). Tax evasion is illegal way of minimizing taxes thus stiff penalties are involved on individual or corporate bodies who evade taxes. Unintentional mathematical errors in tax returns are not considered to be tax evasion (McGee 2012). Tax avoidance is a legal way of minimizing tax liability, and it involves planning in advance an intended transaction so as to get a specific tax treatment. Individuals can minimize taxes through tax planning for example through schemes. Avoidance also involves disclosure. Tax avoidance and evasion schemes a) Defined contribution retirement plan Contributing money to a qualified employer sponsored retirement plan helps in reducing tax liability. A defined contribution retirement plan is an IRS approved retirement plan sponsored by an employer. Contributions made by the employees to these schemes are tax deductible, and as a result, the tax payable is reduced. For example, if an employee who is in a tax bracket of 25% contributes 2000, he will save 500 (McGee 2012). Another benefit with defined contribution retirement plan is that the contributions made by the employee to the scheme are invested to a mutual fund. ...Show more

Summary

The number of reported cases by the media with regard to tax avoidance and tax evasion has been very high. For instance, a report from National Audit Office indicates that HRMC has a backlog of 41,000 cases including individuals and small businesses…
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