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Tax avoidance

1. Definition
- Tax avoidance is the use of legal methods to minimize the amount of income
tax owed by an individual or a business. This is generally accomplished by
claiming as many deductions and credits as are allowable. It may also be
achieved by prioritizing investments that have tax advantages, such as buying
tax-free municipal bonds. Tax avoidance is not the same as tax evasion, which
relies on illegal methods such as underreporting income and falsifying
deductions.

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2. How tax avoidance works
- To reduce income tax liability, some employers give highly-paid employees
lots of 'perks' (short for perquisites) instead of taxable money, such as company
cars, free health insurance, and subsidized lunches. Legal ways of avoiding tax,
such as these, are known as loopholes in tax laws.
- Life insurance policies, pension plans and other investments by which
individuals can postpone the payment of tax, are known as tax shelters.
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- Donations to charities that can be subtracted from the income on which tax is
calculated are described as tax-deductible.
- Individuals who contribute to employer-sponsored retirement plans with pre-
tax funds are engaging in tax avoidance because the amount of taxes paid on the
funds when they are withdrawn 130 in retirement is usually less than the amount
the individual would owe.
- Furthermore, retirement plans allow taxpayers to defer paying taxes until a
much later date, which allows their savings to grow at a faster rate.

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Money Laundering
1. Definition
- Money laundering is the illegal process of making large amounts of money
generated by a criminal activity, such as drug trafficking or terrorist funding,
appear to have come from a legitimate source. The money from the criminal
activity is considered dirty, and the process "launders" it to make it look clean

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2. How money laundering works
Money laundering is essential for criminal organizations that wish to
use illegally obtained money effectively. Dealing in large amounts of illegal
cash is inefficient and dangerous. Criminals need a way to deposit the money in
legitimate financial institutions, yet they can only do so if it appears to come
from legitimate sources.

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The process of laundering money typically involves three steps: placement,
layering, and integration.
 Placement puts the "dirty money" into the legitimate financial system.
 Layering conceals the source of the money through a series of
transactions and bookkeeping tricks.
 In the final step, integration, the now-laundered money is withdrawn from
the legitimate account to be used for whatever purposes the criminals
have in mind for it.