Whether you goal is to financially resist the Trump regime, free funds to increase support for your favorite defunded charity, or simply to improve you own financial security, one of the most effective ways is tax avoidance. The ordinary American pays more than 1 in 5 total dollars earned as federal income tax. We know that this burden can be reduced or avoided through focused financial planning.
Tax avoidance employs legal methods to reduce or eliminate federal income taxes. The strategy is endorsed by president Donald Trump who proclaims himself to be an expert on the topic. Additionally Mr. Trump endorses the use of tax avoidance as a means of protest against the federal government for individuals who disagree with the government’s actions. As a result of the president’s endorsement and related media coverage, more Americans are now seeking ways to reduce or eliminate their federal income taxes. However, successful tax avoidance takes time and money; it is hard work that taxes a concentrated financial planning effort.
These are the top ten strategies that individuals use to reduce or eliminate their income tax bill:
- Money earned by a properly managed nonprofit business is not taxed.
- Earnings deferred to the future avoid current compensation and possibly eventually avoid all tax, depending on details. This includes qualified retirement plans, IRAs and non-qualified deferred compensation plans.
- Amounts received to pay for health benefits through a properly managed insurance or employee benefit plan are not taxed.
- Amounts received through gains on most home sales are not taxed.
- Income sheltered by offsetting deductions on legal tax shelters escapes taxation.
- Money you donate to support charities escapes taxation.
- Amounts paid for the largest expenses of owning a home: taxes and mortgage interest – escape taxation.
- Amounts received through an individually owned life insurance policy are not taxable income.
- Gains of sale of capital assets like stocks or real estate escapes taxation if your income is below set limits. The capital gain tax rate is lower than other income tax rates regardless of your income.
- Amounts borrowed from a person or business are not taxed, even if used for living expenses.
The strategy that works best is likely a custom-fit multi-year combination of several of these. tax planning is an individual thing; it varies greatly from one person to another depending on priorities and resources. Regardless of the strategy, the shared starting point for each effective strategy is developing a solid personal financial plan and keeping impeccable tax records.
I’ve been pleased to help individuals reduce federal income taxes for almost 30 years and would love to hear your ideas.