Tax Planning



Everycitizen has the obligation to pay taxes to an extent that furtheravoidance is not possible. This implies that it is legally acceptableto minimize the tax burden by taking advantage of the legal gaps andopportunities. This paper proposes four major strategies that one canuse to minimize the tax burden without conflicting with the law.

Thefirst strategy involves transitioning of non-qualified investments toqualified ones. Interest and dividend payments are associated with ahigh tax burden. Shifting from a mutual fund with a high turnover,but inefficiently tax managed to a bond fund that is tax exempt canreduce the tax burden of an investor (Fishman, 2015).

Secondly,one should focus on maximizing tax deductions and tax credits. Taxcredits (such as earned income tax credit, child tax credit, anddependent care credit) are more useful because they offset one’stax burden directly and with an exact amount of that credit (IRS,2015). However, it is advisable to only take advantage of tax creditsand deductions (such as medical fees and pension plans) with properdirections in order to avoid crossing the line from tax avoidance totax evasion.

Third,one should make retirement contributions that are tax-advantagedcompared to others. For example, an employed person can takeadvantage of the employer sponsored plans (such as 401 (k) and 403(b)) that are paid on the pre-tax basis (Fishman, 2015). Aself-employed individual can go for the traditional IRA plan andenjoy a dollar-for-dollar decline in taxable earnings.

Fourth,donations that are made to qualified organizations are deductible,which means that they lower the amount of table earnings (Fishman,2015). Therefore, one should assess the qualification of theorganization before making donations.

Inconclusion, tax avoidance is a morally and legally acceptablestrategy that one can use to lower the tax burden. However, it isadvisable to exercise this right with the advice of an expert inorder to avoid closing the limit to tax evasion.


Fishman,S. (2015). Sevensteps to lower your taxes: Learn basic tax-saving strategies youshould know to help reduce your taxes.Berkeley, CA: Nolo.

IRS(2015). Five tax credits that can reduce your taxes. IRS.Retrieved January 22, 2016, from

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