A financial arrangement, such as the use of special depletion allowances, that reduces taxes on current earnings.
Any financial investment made in order to acquire expenses, depreciation allowances, etc. or to defer income, as in an IRA or Keogh plan, so as to reduce one's income tax.
An investment or accounting technique that is designed to minimize the amount of tax that must be paid on income or profits. Although tax shelters typically start out as legal techniques, the Internal Revenue Service may investigate a shelter and argue that it is in fact breaking the tax laws. Thus, tax shelters often operate in a gray area and eventually may be declared illegal.
A transaction or investment by which a taxpayer shelters some or all income from tax liability because of tax credits or applicable deductions. Abuses of tax shelters resulted in extensive reform of the Internal Revenue Code, restricting loss from a business or an investment to only the capital that is at risk. This greatly reduced the availability of tax shelters.