People mix tax shelters with tax havens. When you say tax shelters, people think of ashady prince or two in Saudi, or the British Virgin Islands or a faraway kingdom in the middle of Europe. But it doesn't have to be anything exotic like that. Really, a tax shelter is just a program that the government has that anyone can participate in, for special tax benefits. For example anyone knows that if you donate to a recognized charity, you get a deduction - and that's one of the most effective ways of retaining your money and not paying taxes. But even better would be to set up your life so that all your personal expenses can be seen by the IRS to be recognized deductions. And it's not too complicated either; you just need to become the owner of a business.
Before you turn away to laugh in private, you have to understand what I mean really. You don't really need to go and get yourself incorporated; you just need to declare on the appropriate form that you have a business - you know, as an individual private proprietor. And right away, everything you spend becomes a tax deduction. The IRS does know if such a thing is possible, and is legal as well. To prevent everyone from doing this too easily, they have a couple of simple rules, that practically anyone can ace. The rules only say that it has to be obvious that you're doing it for profit, even if you never actually have a hope of making one. You can still have your day job. There are 'businesses' out there that run purely for the benefit they provide of being tax shelters that haven't made a profit in 30 years and still have the IRS' blessing.
When the IRS scrutinizes what you're running to see if it is a business, they just make subjective assessments. Whatever it is you do, do you do it regularly? Do you have any kind of expertise in what you claim to do? Do you actually tend to your business, or is it something that's just on paper? Do you actually keep books for it? You could be thoroughly bad at how you run your business; that doesn't matter. Just as long as you look like you believe you're running one in the hope of a profit, you should be fine.
So how do you get this thing going? Well you just have to get your receipt books and business forms printed and ready. Whenever you spend anything, it has to be properly accounted for, and you're good to go. There are all kinds of hobbies that would fit in with this kind of plan particularly well. If you like expensive train sets, you can buy them, say that you like to exhibit trains, but never have had the luck to have a paid visitor. If you like to carpentry as a hobby, you could say you were hoping one day to get a paying customer, and route all your household expenses through the carpentry 'business'. If the law allows it, why not?
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