All United States citizens, whether working domestically or abroad are required to pay income taxes. It seems as if it is an absolute certainty in life. As the sun rises in the morning, so do you pay taxes each April. But, there are some legal ways to avoid paying income tax.

1. The most obvious, extreme way to avoid paying taxes is to give up your American citizenship, and move to another country. The U.S. is unique in that it taxes its citizens on income they gain at home or abroad. Most other major countries tax only income earned while working within the country. So, if you are a citizen, of let’s say Canada, but you are working in a low tax country like the Bahamas, you would not have to pay Canadian income tax.

2. A variation on number one, that doesn’t involve giving up your American citizenship, is to take advantage of the foreign earned income exclusion in tax code section 911. This allows a couple, operating a business established overseas, to take up to $160,000 in income from the business tax free. This requires residency to be established in the foreign country, but no change in citizenship.

3. For those with high net worth, investing in tax exempt bonds offers an opportunity for tax free income. The yearly return on bonds is somewhat low, typically around 4%, so you would need a large sum of investment money in order to get a substantial return. It is also important to purchase the bonds in an income tax free state, so that you are not paying federal taxes or state taxes.

4. Income gained from the sale of your primary residence is tax free up to $500,000 for a couple. There are limits to this, such as the stipulation that you have to reside in the home for at least two of the last five years. But, if you buy and sell your primary residence every two years, and make a gain each time through improvements or market changes, there is potential here for tax free income.

5. For the small business owner, there are a lot of things that can be done to reduce or eliminate your income tax burden. Hire a tax professional to make sure you are deducting all possible business expenses. Contribute to a tax free retirement fund. Split the business income among family members to reduce tax percentage. And, there are many others.

The purpose of this article is to describe a few ways to legally avoid paying income tax. The list could go on and on, but the point is, if you get creative, you can save a lot of money. And remember, this above is strictly the opinion of the author, and is in no way a legal opinion. The information is offered on an as-is basis, and it is recommended that you consult a lawyer, who is familiar with tax law in your country, before making any final decision, or you may find yourself in a lot of trouble and paying more than you say in penalties.

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