BusinessWeek recently posted an interesting article discussing some strategies used by the ultra wealthy to avoid paying taxes. Some of these techniques hold lessons which are useful for more than just the ultra wealthy. And several of them are simply about avoiding estate taxes rather than income taxes (which don?t help much when the vast majority of folks aren?t going to be paying any estate taxes anyway). But it?s worth reading.
In my own blog post about this article (wherein I discuss at greater length the specific 10 techniques the article lists), I demonstrate how the headline numbers so often used in the press can be terribly misleading, by showing how taxes as a percentage of AGI can be very different from taxes as a percentage of taxable income (in my example, I use a large charitable contribution to do so, though I note that making large gifts to charity is *not* one of the techniques the article discusses!) Anyway, there are a couple of techniques in there which are worth considering for non-ultra-wealthy people (if they have some cash available): One which may be (somewhat) controversial is the use of permanent life insurance (especially if owned by an irrevocable trust). The other is deferred comp, which the article makes sound like something out of the reach of normal everyday people (which, of course, it's not - for most folks it simply means maxing out their 401(k) - which most folks don't do). And there's tax-loss harvesting, which the article complicates by mixing in wash-sale rules, but anyone with taxable investments should be keeping an eye on losses and harvesting when it makes sense. Enjoy.