Legal Tax Shelters – What Are The Best Options ~ The International Finance

Tuesday, 25 September 2018

Legal Tax Shelters – What Are The Best Options

Tax shelter is a simple way in which you can minimize the amount of tax you are liable to pay on your taxable income so that you can save it for the rainy day and build up your emergency fund. This is definitely regardless of the amount you are earning annually.

Tax shelters have gained prominence across the globe and people have unanimously accepted the avenue for lowering their taxes. However, not many are aware of the manner in which they must go about for optimum benefits.

In this write-up, the various tax shelters have been discussed that you can avail. Read on for better insight.

5 avenues for saving in tax shelters

Tax shelter avenues have earned a bad reputation the world over. While few are illegal, others are too good to be true and operated by banks that try to manipulate income slabs and save your money. However, given below are 5 ways in which, you can save your hard earned money and also be a responsible citizen of your country. 

  • Retirement accounts
This is perhaps one of the best avenues of tax shelter available. You can opt to save in the account that you feel is suitable for you and will meet your requirement. You have 2 options to choose from, namely, IRA or IndividualRetirement Account that is meant for individuals as the name suggests and the one that is available to workers at your workplace and are referred to as 401(k) and 403(b). Alternatively, if you have your own occupation, you can save in SEP-IRA or 401(k).
  • Business
Starting a business is one way to save your money, regardless of whether you are doing full time or as part time occupation. One of the best ways to accumulate wealth is by diverting your personal expenses into allowable deductions related to your business. This can be better explained with the help of an example. For instance, if you are operating from home, you are entitled to deduct expenses that are related to utilities, maintenance, and overhead operating costs related to your business.
  • Medical savings accounts
Health savings account (HSA) and Flexible spending accounts (FSA) are 2 types of accounts that are offered by many employers. This allows employees to manage expenses related to healthcare.
Your employer can make tax free contributions towards these accounts and a portion of your income can be pooled in too. However, there are few norms that you must adhere to pertaining to the FSA balance amount you must spend by the annual deadline date. Funds that you do not use in HSA get rolled over again for the next financial year.
  • Own a property
Experts always say that real estate can be a good tax shelter. The year you buy your property, you get to enjoy a tax benefit, and also the subsequent years till the time you own the property and also when you decide to sell off your property.
Two very prominent tax deduction avenues for homeowners include mortgage interest and property taxes.
  • Avail benefits at workplace
If your company offers benefits like disability insurance and health insurance, the cost that will be incurred is deducted from your wage before you shell out any amount as taxes. So, you don’t have to pay that deducted amount as tax. Car allowance and education expenses if borne by your employer are non taxable too. 

The 5 tax saving avenues mentioned above are legal so you can avoid operating in offshore accounts that may not be reliable and you might end up losing all your hard earned money in the long run.

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Amit Singh is a founder of he share his immense knowledge of Finance in this blog.


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