Tax Avoidance versus Evasion
Which of the following scenarios best illustrates tax avoidance rather than tax evasion?
- Sarah intentionally underreports her cash income from a side business to reduce her taxable income.
- Tom invests in a municipal bond fund to receive tax-free interest income.
- Lisa pays her household employee in cash and does not issue a Form W-2 or withhold payroll taxes.
- Mark claims personal travel expenses as business deductions to lower his taxable income.
