What You Should Understand About Tax Shelters

Most people have heard the term “tax shelter.” Unfortunately, most people don’t really understand the true definition of this term.   

A “tax shelter” is simply a place where you can put your money so that it won’t be taxed. And, while that might sound illegal, there are plenty of tax shelter options that are fully legal and legitimate. These legitimate tax shelters are the exact type that you should be taking advantage of.

Deductions

One type of legal tax shelter is what is known as a deduction. Deductions are legally allowed tax breaks.

You can get deductions for things like making a donation to a charity, deducting business expenses, or deducting student loan interest. There are all kinds of deductions available, and you can find the ones that will apply to and benefit you by working with a qualified tax professional.

Home Equity

Home equity is another valuable tax shelter, at least for those who sell their homes at some point in the future.

When you choose to sell your home, you won’t have to pay taxes on the profit up to a certain amount. For single people, this amount is $250,000. For married couples filing jointly, the amount is $500,000. That’s a lot of money to make without paying taxes, and it’s perfectly legal. Just make sure you work with a tax professional to ensure you cross all your “i’s” and dot your “t’s.”

College Savings

If you have children, you undoubtedly hope that they will one day attend college. If you’re saving up money for that very purpose via a 529 College Savings Plan, you could also save on taxes.

Any earnings from this plan are not subject to taxes, providing you do eventually use them for your child’s college education.

As you can see, legal tax shelter opportunities abound. These are actually just a few of many. The key is simply to take advantage of the tax shelter options you have. Learn how to do just that and about other possible tax shelter options by working closely with a tax professional.