From the course: Finance Foundations: Income Taxes
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Tax evasion: Beware of illegal strategies, part 1
From the course: Finance Foundations: Income Taxes
Tax evasion: Beware of illegal strategies, part 1
- Recall from our discussion of basic tax planning strategies that there are three strategies that people like you and me employ. First, we shift income from the current time period to a point in the future. Common examples of this are the use of IRAs and 401(k) investments for retirement. Our contributions reduce our taxable income now and we are taxed on the investment and the earnings on the investment in the future. Our second strategy is to shift income from a high tax location be it a state or a country to a low tax location. We consider the tax consequences when we decide to relocate and the third strategy is changing the character of the income or the rate at which the income is taxed. We do this by holding investments for more than a year making them eligible for the lower, long-term capital gains tax rates. This is tax planning. We structure our activities so that we pay the minimum amount of tax required by law. Tax planning is different from tax evasion. Tax evasion occurs…
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