How can one avoid taxes from his or her investment income?

Answer 1

Triple Tax Free

This is an investment (usually a municipal bond) featuring interest payments that are exempt from taxes at the municipal, state and federal levels. Also known as "triple tax-exempt".

Municipal bonds often offer triple-tax-free interest payments to investors because the U.S. Constitution forbids the federal government from taxing interest earned on loans to municipalities and states. The state or municipality issuing the bonds makes the bonds tax-free to encourage investment, and the remaining state or municipality offers tax-free status to the issuer at its particular level of government as a courtesy.

However, tax-free status on earnings comes at a price to investors, as these bonds usually offer lower returns. This may or may not be made up to bondholders depending on the amount of income tax they pay: higher income earners will gain more from tax-free investments than lower income earners.

Answer 2

The government makes it very simple. They have created the Roth IRA account. All investment gains from that account are tax free. You can deposit up to $4000 a year if you make under $100,000 a year. The $4000 ratchets up. It may be higher now. After you place the money in the account, if the account is with a firm such as Fidelity, Etrade, or Scottrade, you can invest it in what ever you desire and watch your investments grow knowing you will never have to pay taxes on those gains.

Answer 3

Die and leave the money to your beneficiaries. Seriously. They'll get a "stepped up basis" and (as long as you don't owe any estate taxes) won't owe any money on the increase in value of the investment that accumulated during your lifetime.

Or: buy tax-free investment vehicles (although most of them are still taxed at some level or another, but at least you can avoid some taxes.)

Or: buy investments that don't provide income, or provide as little as possible, and never sell them, thus locking the capital gains into the asset and away from the government's capital-gains and dividends taxation.

Answer 4

Both of you referring to Roth IRA, forgot to mention that the money you deposit to Roth account is already taxed. (you make after tax deposits) .Furthermore, Roth accounts accrue your money invested, they don't give you monthly investment income per se. You may purchase tax exempt muni bonds, you may invest in real estate ( you tax bracket will be 15% as opposed to 25-35%) Getting an advise from a competent accountant on this manner would definitely be priceless.

Answer 5

I agree with the previous answer. Get a Roth IRA account. I have one and it was the best decision I ever made. I'm in university right now and if I need that money I can use it for my student loans. Even though I would have to pay a penalty on it, it would be just the same as losing that money should the stock market go into a recession.

Answer 6

US? There no way to reduce or eliminate the tax burden. There is one way to defer it and is to do a Section 1031 Like-Kind Exchange in which you exchange one property for another through a qualified intermediary. However, with this type of transaction, you do not receive cash. You would get another property. There is no way to defer, reduce or eliminate the taxes if you receive cash. Note: If that increase in value was due to work that you did on the property yourself (ie. "Sweat Equity), your 30% number may be a little low. If you did the work yourself, this income would be considered self-employment income subject to ordinary income taxes and self-employment taxes.

Answer 7

Get the advice of a good accountant