So now that you know what's legal when it comes to tax shelters, read on to find out about abusive tax shelters. Typically, you contribute part of your income to the benefit before your tax withholding is calculated. If your employer provides benefits like health coverage, life insurance and education benefits, you can reduce your taxable income by taking advantage of these opportunities. Interest you earn on municipal bonds is not taxed by the IRS. Municipal bonds are used by smaller governments (state, municipal, county) to fund public works projects, such as taking care of those potholes left after a bad winter. Boxcar can prove to the IRS that he is attempting to make a profit with his side business, he can write off many business expenses, including equipment and supply costs. Boxcar will take money from his primary income as an insurance salesman to fund his model train restoration business, which could reduce his taxable income. Boxcar, an insurance salesman with a knack for restoring old model trains, could set up a business to market his repair and restoration skills. Putting a portion of one's primary income into a side business is a popular way to shelter oneself from federal income tax. When you withdraw money or receive payments from one of these plans, the IRS assesses the tax on the amount withdrawn, but often at a lower rate than it would have taxed the original income. The caps are there to keep people from dumping all of their money into a plan to avoid taxation. A 401 (k) or other type of tax-deferred retirement account like an IRA allows you to save money on taxes now by deferring to pay taxes in retirement when your income and tax bracket are likely lower. Every plan is different and has its own regulations and contribution caps. Here are nine of the best tax shelters you can use to reduce your tax burden. A worker (and his or her employer) can make pretax contributions to these plans, which consist of a portion of the worker's income before it's assessed for federal withholding.

Retirement plans, such as pensions, 401(k) and 403(b) plans, and Individual Retirement Accounts (IRAs), have legitimate tax shelter qualities. In addition to the deductions it allows you to make - mortgage loan interest, mortgage insurance and property taxes - a real estate investment can help you grow wealth over time. Investing in real estate is a common tax shelter.

How to use tes5edit with real shelter