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How to Avoid Income Tax - If You Hate Paying Tax

By Edited Jul 29, 2016 6 20

Tax Burden

I believe that most people hate to pay tax, and they will try each and every advice, tip, or trick in order to avoid paying more tax than what they themselves find is being a reasonable amount in return for what they get of various public services.
Many people are so focused upon the game of paying as little in tax as possible that they stop to think in a rational way, and will follow some How to Avoid Tax Tips & Tricks that later on will turn out as a back-hitting-boomerang.

This article will give you a 100% secure advice on how to avoid income tax.
And if you follow my advice then you will not later on be punished by the tax authorities, regardless of which type of tax structure and income tax your country has.
But more about my advice later.

Before I tell you how to avoid income tax, then I want to inform you about myself and my personal tax experience.
I am a Danish citizen, living in Sweden, and I own a company in Estonia (I have been residing in the USA, Africa, Asia, and a couple of other European countries). I will in other articles write about international tax issues.

So as for now, I find that it is only fair if you are asking yourself the following question:
How does this nomadic life make him an expert on income tax?

Well, first of all you should be aware of the fact that Denmark and Sweden have the world record in high taxes.
The tax structure in those two countries are not exactly the same. And one year it might be one of the two countries that has the highest total tax rate, and the next year it is the other; but in both countries the total tax structure results in a record high tax burden on the people who live there.
One way of measuring the tax burden in any country, is to compare the total taxes payable to the total GNP (i.e. the total value of each country's production of goods and services). In both countries (Denmark and Sweden) more than 50% (FIFTY+ percent!) is raked in as tax!

Well, of course not all of it is income tax. The tax structure in Denmark and Sweden consists of many different taxes in addition to the income tax. Let me give you some examples:
In Sweden there is a sky high tax on alcoholic beverages.
In Denmark cars cost more than in any other European country (If you want to know the price of a car in Denmark, then do this simple calculation: Multiply the ex factory price by three and you have the price of a car in Denmark).
Both countries have a sales tax (Value Added Tax) of 25%.
But in most people's opinion, then the most annoying tax is the income tax, which in both countries is progressive. This means that you pay a very high percentage of the last earned amount (We have Krone instead of Dollar) and many people pay more than 65% of the last earned Krone in income tax.

One final piece of information before I give you my 100% secure and very effective advice on how to avoid income tax:
I am Danish, and we are notorious for using irony and sarcasm in our way to express ourselves (remember that when you now get my advice):

The 100% secure advice on how to avoid income tax is:
Don’t earn too much!
It is OK if you take this advice as a joke! But I have actually three relevant thoughts behind this provoking advice; and it ought to make you, as well as the tax authorities (and politicians) think!

Let me first remind the politicians about a fact:
If a country has a tax structure with an income tax percent of 0%, then of course the income tax revenue is ZERO.
But if a country has a tax structure with an income tax percent of 100%, then the income tax revenue is ZERO too. It is zero because if all the income is confiscated then nobody would care to have any income.
The big question is then: How high income tax percent is acceptable?
Income Tax Percentage

In my opinion most people will react strongly if they have to pay more than half of what they earn in income tax.
It might be easy to understand that the government want to reduce the consumption of alcohol or private driving in cars, and thus impose high penalty taxes on such goods.
But a high penalty percentage of income tax will also result in a reduced willingness to work extra.

Number two (of my three lines of thought) is directed to those who desperately want to know how to avoid income tax.
Be on alert if you are offered participation in any investment schemes that promises you great tax savings. In particular you ought to be on alert if the sales argument of the investment scheme focus primarily on how to avoid tax.
It might be correct that you will pay less in income tax, because if it is a business investment that gives you a loss instead of a profit, then of course you will pay less tax.
The person who sold you on this income tax saving idea might run away with a huge profit (laughing all the way to the bank); and like all con men, he used your greed to con you.

Number three (of my three lines of thought) is a modification of number two.
It is of course possible to make a good investment that in the long run turns out to be profitable, but which on a short term gives a legit possibility to obtain tax-exempt by means of depreciation rules.
epreciation rules will reduce the income tax you have to pay in the year you began the investment, and it might very well have some effect in the coming years too.
This method can be a very good idea if you have high fluctuating yearly income, because you can level out the income from one year to another, and thus avoid the penalty of a progressive percentage of the tax structure.
But remember that you are merely pushing payment of the income tax forward to be payed later on. And sooner or later it has to be paid (The very last date of payment is settled by your estate, after your death).

The final thing to consider in order to avoid income tax is to move your residency.
Maybe you can save paying tax by moving from one city to another, or cross a state line.
Or as I have practiced successfully by thinking internationally: Earn your money in one country and live in another. This is 100% legit and is merely the same (on a smaller scale) as what big multinational companies do.



Mar 22, 2010 2:34pm
I agree that people hate to pay taxes. The effort to earn money, whether physical or mental or a combination of both, is usually so 'taxing' in itself that anything taking it away seems like an insult to the already injured. My personal feeling is that if I can only keep others from ever having to give up their hard-earned wealth to make up for what I can't, or won't pay, then I've given them the 'gift of freedom from having to support me or my family.'
But to add the only other way still remaining (to Americans) to avoid taxes, I must mention the ROTH IRA contribution. Once invested the amount is allowed to earn without limits with no tax collected when withdrawn after the allowed time. Technically, since tax on the money you used to buy the Roth IRA has already been taxed, that forever satisfies the
IRS. But whatever you did to make it GROW, (all earnings) are yours to keep -- unless a stroke of a "new pen" overturns that privilege. And adding to our towering debt increasingly attracts more dire changes than that.
Personally, though not possible for me, I quite like the idea of moving to different countries before tax-time rolls around, or too many bills show up in the mail, or even when the weather here turns bad. No escape from problems anywhere on Earth, but might be refreshing to worry about different ones for awhile!
Mar 22, 2010 5:38pm
Thank you for the comments, - in particular, thank you for the tips about ROTH IRA, which is very useful for US-residents.
May 18, 2010 9:41pm
interesting article on How to Avoid Income Tax - If You Hate Paying Tax and you have a few funny points there too; thanks for the post!
May 19, 2010 9:56pm
Thank you for the compliment! (my points might be funny, but I believe they are very true too)
Jun 8, 2010 6:42pm
Very good. I feel that it is hard to escape tax. However, your article gives cues on how to do it. I have to try it to see it work.
Jun 9, 2010 9:08am
I wish you good luck!
Jun 9, 2010 6:10pm
Jun 19, 2010 5:51am
Well done! Great information - A++!!
Jun 20, 2010 6:36pm
Thank you!
Jun 26, 2010 9:45am
My only question is how do people afford to live in Denmark and Sweden? 50% tax-wow! I know we all complain about taxes, but that is crazy!
Jun 26, 2010 10:41am
Well, in particular Denmark has very high salaries - I don't mean CEO of large companies, what I mean is that ordinary workers (blue or white collars) get minimum $4-5,000 per month after tax; and even unemployed get a (low) salary (government paid) of $2,000+ after tax. Health care is almost 100% free. There are no tuition fee or other costs to any of the universities (In fact students get a salary during the first 6 years of study) etc. etc.

A smart move is to earn money in Denmark and live in Sweden. (I speak out of personal experience). Higher salary in Denmark, lower costs in Sweden; it easily pays for the 1+ hour commuting.
Jun 26, 2010 11:24am
Wow! That is amazing! I would say the benefits more than make up for the high taxes.
Feb 10, 2011 8:41am
As a US citizen living outside the United States, it is pretty easy to get a huge tax break (last I checked it was like $75,000 per year). But, there are certain rules you have to abide by which are sometimes pretty strict. Therefore, I don't take the flat deduction and itemize my deductions.

Because I live outside of the US for work, I get to write off quite a bit of my income as work expenses and claim very little. I actually adjust some of my income against me so I can take advantage of the extra credits. If you earn nothing in the US, you can't take advantage of Social Security and Child Income Credits. I take fewer deductions than I am allowed so that I can show enough income to get those advantages.
Feb 10, 2011 10:49am
Thank you for your information! I am certain that many US citizens will appreciate your personal comments.
Feb 12, 2011 1:07am
The hardest part of knowing what you can and cant claim is because they keep changing the rules at least they do in Oz, we found it easier to give it to an accountant in the end.
I used to itemise it all and add up then he just had to do the right things with what we gave him. Good information on this article.
Feb 12, 2011 6:54am
Thank you for your comment! Yes, the Tax Authorities continue to change the rules of the game. Maybe Google learned that trick from the Tax Man!
Feb 12, 2011 6:52pm
I am very interested in this! So "Earn your money in one country and live in another." - this means in my case that I can keep all IB income for instance - which is earned outside Romania? I just qualified for my first payment on Adsense. Useful and very true remarks in this article.
Nov 15, 2011 3:04pm
Very cool topic for an article. Just make sure you don't EVADE taxes hehehe
Mar 1, 2012 5:57am
Soon it will be 'the time' for making annual income reports to the 'tax man'.
This year it is too late to benefit from most of my ideas in this article; but you ought to begin planning how much tax you want to pay on your 2012 income.
Sep 24, 2013 2:34am
Thanks again for that reminder of taxation. The trouble I find most infuriating is that if I earn .01 cent to $50 extra a week I still have to report every fortnight to the centrelink( employment centre in oz). But because I only earn small amounts I sometimes let it go for a couple of months and I still do not go over which suited me fine.
I just love the interaction and a bit of pocket money. When we do report they keep messing it up and then when get our pension stopped. Can be embarrassing if away and like once we had no money. Frustrating. Thats why I think I will give this game away. Cheers.
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