Tax Shelter

AAA

DEFINITION of 'Tax Shelter'

A legal method of minimizing or decreasing an investor's taxable income and, therefore, his or her tax liability. Tax shelters can range from investments or investment accounts that provide favorable tax treatment, to activities or transactions that lower taxable income. The most common type of tax shelter is an employer-sponsored 401(k) plan.

INVESTOPEDIA EXPLAINS 'Tax Shelter'

Tax authorities watch tax shelters carefully. If an investment is made for the sole purpose of avoiding or evading taxes, you could be forced to pay additional taxes and penalties. Tax minimization (also referred to as tax avoidance) is a perfectly legal way to minimize taxable income and lower taxes payable. Do not confuse this with tax evasion, the illegal avoidance of taxes through misrepresentation or similar means.

RELATED TERMS
  1. Double Irish With A Dutch Sandwich

    A tax avoidance technique employed by certain large corporations, ...
  2. Tax Haven

    A country that offers foreign individuals and businesses little ...
  3. Income Shifting

    A strategy of moving a person's income from a high income bracket ...
  4. Tax Evasion

    An illegal practice where a person, organization or corporation ...
  5. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  6. Tax Shield

    A reduction in taxable income for an individual or corporation ...
Related Articles
  1. Investing

    What was the Mahonia company and why did it become the subject of a lawsuit?

    In 1992, J.P.Morgan went into the energy trading business by creating a venture company called Mahonia Limited. At least, that is how things appeared on paper. Mahonia was actually a type of ...
  2. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  3. Taxes

    Surviving The IRS Audit

    Keeping thorough records and knowing the penalties make this experience easier than you'd expect.
  4. Taxes

    Safe Tax Planning For High-Net-Worth Filers

    Planning is essential for the affluent seeking tax breaks. Get to know the legal strategies for saving more.
  5. Mutual Funds & ETFs

    Activist Hedge Funds: Follow The Trail To Profit

    Learn to profit by following the lead of some of Wall Street's most ruthless investors.
  6. Options & Futures

    Cut Your Tax Bill With Permanent Life Insurance

    Learn how to lower your income tax and avoid estate tax - all while building wealth.
  7. Taxes

    3 Common Tax Questions Answered

    We clarify some rules that often puzzle taxpayers.
  8. Professionals

    Just Retired? No Better Time for a Second Career

    After working for decades and reaching retirement age, what's next? A second career, of course. Here's why and how.
  9. Taxes

    What are the best ways to lower my taxable income?

    Paying taxes is an unavoidable obligation each year, but individuals and business owners can take advantage of various strategies for tax savings.
  10. Retirement

    How does the Canada Pension Plan (CPP) work, and what asset mix does it hold?

    Learn the difference between a chartered financial analyst and the Canadian pension plan. Explore Canadian retirement options and how the CPP is invested.

You May Also Like

Hot Definitions
  1. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  2. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  3. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  5. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  6. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
Trading Center