Tax avoidance is definitely not a good option. However, decreasing tax payments can be possible. What more, it can be done in a legal way. This is through the powers of a tax shelter.
Typically, the definition of a tax shelter is any method being done with the purpose of reducing any investor’s taxable income as well as liability. However, its implementation is under thorough observation of tax authorities due to big possibilities of abuse.
There are a lot of kinds of tax shelters. Most of the countries have the same concept of this legal tax avoidance program. Since some can abuse the use of tax shelters, one needs to only patronize the legitimate ones. In this case, you can be assured that you are still within the legal path. In any case you are looking for a tax shelter outside the U.S., here are some legitimate tax shelters you definitely can find.
- Retirement Plans. With an individual retirement plan, a resident can defer a payment of the income taxes until such time that the retirement day comes. Also, the retirement benefits will not be subjected to tax anymore.
- Limited Partnerships or Flow-Through Shares. So the government can encourage an investment in some heavy industries like oil and mining operations, this type of business is being tax sheltered. This is because investments in this kind of industry are big and the income cannot be realized just after a couple of years in operation. If they still pay big taxes, chances are these companies will not be interested anymore in investing in this kind of industry.
- Real Estate. This is one of the most common types of tax shelters. This is because aside from property tax deductions, it also helps in the reductions in mortgage loan interest as well as mortgage insurance.
- Employer-Sponsored Benefits. In cases where your employer gives you benefits like health insurance, educational assistance, and life insurance, you can reduce your taxable income when you use the benefits.
- Other Forms of Legitimate Tax Shelters. Depending on the country you are in, there can be more legal tax shelters approved by the country’s revenue bureau. Some other tax shelters include municipal bonds and putting up your own business.
Though it is required of you to trust only legitimate tax shelters, it is also better to know the abusive ones. This is to guide you away from these illegal programs and to help you stick with the legal ones. Examples of abusive tax shelters include financing arrangements, offshore investments, and the like.
So to better guide you in the legal path of reducing the amount of tax you need to pay, it is better to seek assistance from a tax relief attorney. Also, you can check the country’s revenue department to check all the legalities of the tax shelter in a particular area. This is because one shelter can be legal in one country but illegal in another. In this case, you will be sure that the tax shelter you are entering into is nothing but legal.