Watch Related Videos
comments
Tax avoidance and tax evasion are two different things. Tax evasion is illegal; it is the intentional omission or misreporting of information to the IRS or state revenue service. Tax avoidance, on the other hand, is employing strategies to lower your tax burden on an annual basis and is a lawful practice.
Offset Capital Gains
You can offset capital gains with capital losses. As a business or individual, when one of your ventures succeeds, you can pour the excess gains into another venture, resulting in a net gain of zero. One example is a 1031 exchange in real estate. Instead of simply selling a property for profit and paying taxes, you can place the profits into a new piece of property and defer your tax payments.
Retirement Savings Accounts
With either a traditional 401(k) or traditional IRA, you can deduct the funds you place into a retirement account from your current taxable income. There is a limit to how much you can deduct, but the limit is very high. This is only a deferred tax; you will eventually have to pay taxes on the funds when you withdraw them from the account. However, this method can be used during years when you expect a very high income tax to reduce your burden.
