Believe it or not, nobody would pay taxes if they were not required by the law – i.e. Internal Revenue Service also known as IRS. Everybody likes to use their money solely for their own purpose and not for public betterment. However, many people who try to avoid paying taxes either end up paying the entire amount along with fees later on or go to jail as a result. In the end, everybody wonders is there really a way to avoid paying taxes legally or atleast reduce it.

What are the ways to avoid paying taxes but also won’t get you in trouble with the IRS. 

IRS can’t touch the profit from your home sale: Many home sellers don’t realize under a tax code provision, a single taxpayer who is making a sale profit upto $250,000 on his or her property is safe – meaning you are excluded from paying taxes as long as you keep your gains from that estate lower than that point. And if you are married or filing jointly, that maximum gain point is double. 

You so get a lot of opportunities to reduce your taxes when you buy a new home. The $8000 new homebuyer credit was a huge success since it lets you keep that much money in taxes for like 13 years or so. Another thing is there are all sorts of tax reduction as part of your home mortgage interest payment and for using your house as a homestead – that is you live there- rather than using it for commercial and business purposes.

There are also tax-shelter deduction ways such as investment in a new real estate property or exchanging one for another. Lets say you sell an expensive house and made a lot of money on that. Now when it is time to pay some taxes on that, you can consider buying a new one that can either help you postpone paying taxes or massively reduce them. Also you get to apply for interest free loans. This is known as like-kind exchange and uses Internal Revenue Code Section 1031 .

Munciple bonds will save you taxes too: These are like small investments that you make through which you earn interest that are much higher than your regular banks. And since they are issued by state and local governments, the earning you make on them are often tax exempted.

Use your employer as a tax shelter: employers offers a variety of benefits and one of them that is of particular interest in this topic is flexible spending account and such. The money you earn and going into such accounts can be use for child care or medical expenses and are safe from IRS reach. You never tax on those money.

Retirement money will remain the same exact amount when you take out. When you cash out your Roth IRA and 401k plans, those money are tax-free.