What Is Tax Avoidance vs. Tax Evasion?

Tax avoidance is the legal use of tax laws to reduce your tax bill — things like contributing to a retirement account, claiming legitimate deductions, or timing the sale of investments. Tax evasion is illegal — it means deliberately underreporting income, hiding assets, or falsifying records to avoid paying taxes you legally owe. The line is clear: if a strategy is explicitly allowed by the tax code, it's avoidance. If you're hiding income or lying, it's evasion. The IRS can pursue criminal charges for tax evasion.