How to Legally Evade Taxes

The term "tax evasion" describes illegal activities and means used to avoid paying taxes; the term "tax avoidance" is what one uses when describes methods of avoiding paying taxes that are entirely legal. For high individuals with a high net worth, as well as those with closer to average earnings, finding clever methods of moving money around to avoid the tax man can be a necessary step in planning one's future. In what follows, you'll learn a few methods for legally avoiding paying taxes. 

One method that many high net worth individuals use to avoid tax payments is to expatriate. By renouncing their American citizenship and moving overseas, individuals can avoid paying any American taxes on income earned in the country. However, just moving overseas is not enough, as many other countries have tax rates equal to (or higher than) those of the United States. Thus, people tend to choose countries that are considered tax shelters, like the Bahamas or Monaco. This process can be quite difficult to complete, particularly for those with assets in the millions, but it may be worthwhile for certain individuals.

Another way of legally avoiding taxes is placing your money in tax-exempt bonds. While these bonds normally have fairly low rates of return, you'll avoid paying taxes on the money you hold while generating profit. If an individual puts one million dollars into tax exempt bonds at 3% annually, he or she will generate $30,000 tax-free dollars. While those strategies are better suited to high earners, those with more modest means can also avoid paying taxes by placing their money in Roth IRA accounts. The Roth IRA is a special type of retirement plan that isn't taxed under most conditions, allowing individuals to place a modest amount tax free every year, which can really add up over the course of a decade or two.