Revisiting Legitimate Tax Avoidance & Proactive Tax Planning

legitimate tax avoidance
Judge Dan Hinde

Supreme Court Justice Louis D. Brandeis (1856-1941) was a strong advocate of tax-wise giving, as noted in the following extract from his essay entitled “Thoughts on Legitimate Tax Avoidance.”

“I live in Alexandria, Virginia. Near the Supreme Court chambers is a toll bridge across the Potomac. When in a rush, I pay the dollar toll and get home early. However, I usually drive outside the downtown section of the city and cross the Potomac on a free bridge. This bridge was placed outside the downtown Washington, D.C. area to serve a useful social service: getting drivers to drive the extra mile to help alleviate congestion during rush hour.


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If I went over the toll bridge and through the barrier without paying the toll, I would be committing tax evasion. If, however, I drive the extra mile outside the city of Washington and take the free bridge, I am using a legitimate, logical and suitable method of tax avoidance, and I am performing a useful social service by doing so.

For my tax evasion, I should be punished.

For my tax avoidance, I should be commended.


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The tragedy of life is so few people know that the free bridge even exists!”

There are free bridges located within the Internal Revenue Code which allow you to legitimately avoid unnecessary taxes – the key is to know where to find them. But there are also other sections in the Code which are designed to automatically take you across toll bridges. The price for crossing a toll bridge is the payment of taxes.

Like Justice Brandeis, you need to make the effort to drive the extra mile and actually cross the free bridge – when you do, the benefits for you, your family, and your community can be substantial.

This is what I do. I help clients find the free bridge.


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Tax & Investment Strategies

There are 50-plus tax and investment strategies categorized to use them to reduce tax liabilities to below 18% effective tax rate including tax bracket management, income smoothing, income shifting, specific net investment income, wealth transfer, section 199A planning, and investments.

Examples of Some Strategies

  • How to take advantage of Itemized Deduction in tax bracket planning
  • Charitable planning percentage limitations and related itemized deduction strategies
  • The role of donor advised funds
  • Implementing the Backdoor Roth Conversion in 2021 before it vanishes.
  • How to do a Roth Conversion tax free! (see below)
  • Implementing 529 College Plans for children and grandchildren
  • Roth conversion insights and strategies – who should convert what and when…see below
  • What are micro-conversions and where do they fit into the overall strategy?
  • Gain and loss harvesting strategies
  • How charitable remainder trusts will become the leading 2022 strategy for large gains!!
  • How Oil and Gas Strategies work to reduce taxable income
  • Qualified Opportunity Zones-defer capital gains and turn them into tax free money
  • Qualified Charitable Distributions in 2021
  • Exit strategies for Pension and Profit-Sharing Strategies to minimize tax on distributions
  • Using life insurance as the core wealth transfer vehicle

If you sat down with your tax planning team throughout the year and they discussed any of these issues with you, the goal would have been to reduce your taxes into the 15-18% effective tax bracket. With our strategies we can eliminate all your taxes, but on a common sense and more practical level it would not make sense. So the goal is the 15-18% bracket. You know you are receiving good advice if you have achieved this.

One of my favorite tax reduction strategies is the Roth Conversion:

With one of our alternative investments which invests in real estate, during the construction phase of the project, the investment is revalued between 65-70% and this is the year-end value reported to the IRS. This is the time the Roth Conversion is done. $500,000 investment is now reported at $350,000. This transaction is now combined with a Natural Gas investment which has a tax deduction in the first year of 75-80%. An investment of $450,000 will create a tax deduction of $360,000 which will offset the taxable event from the conversion. By the way, the income that will be generated from the Natural Gas could be anywhere from .5% to 3% per month for a period of 10 years and then single digits for the next 30 years. Although past performance is not a guarantee of future performance.

Bill Newton

Bill Newton is President of Sterling Newton, a registered investment advisory firm in Jacksonville. As a virtual family office with a large national network of partners we address the following five areas of our clients’ financial lives: (1) making smart decisions about their money; (2) mitigating taxes; (3) taking care of heirs; (4) protecting assets from being unjustly taken; and (5) magnifying the power of charitable gifts.

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