• Anthony Glomski

Four Ways to Avoid—Not Evade—Taxes

Updated: Jun 16

Key Takeaways:

  • Tax avoidance is supported by the U.S. government.

  • High-quality tax professionals can help you identify legal strategies that make sense for your situation.

  • Trusts, insurance, and qualified plans are three ways to potentially reduce taxes.

When it comes to lowering your tax bill—something nearly all entrepreneurs want to do—it’s crucial to make sure you’re avoiding taxes, not evading them.* The difference between the two:

  • Tax avoidance is the use of governmentally sanctioned methods—legal methods—to minimize your tax liability. When you’re engaged in tax avoidance, you’re not breaking the law.

  • Tax evasion is when you fail to pay your taxes using illegal means. Evasion can include not reporting income or investment profits as well as claiming fake business expenses on your (fraudulent) tax return. But it can also be very complex—using trusts, partnerships and other structures (as well as sham transactions).

Here’s another way to look at it:

Question: What’s the difference between tax avoidance and tax evasion?

Answer: About four inches.

Why four inches? That’s the width of a typical prison wall!

Why would anyone want to take the chance?

We’re hyperfocused on creating optimal solutions for our clients—including tax planning. This is due in part to the fact I started as an account at KPMG and that it drives tremendous value for our clients. In this article, our colleagues at AES Nation share in-depth some of the high-level approaches that may make sense for entrepreneurs.

Why Tax Avoidance Is Good

Here’s something most of us don’t fully appreciate: The government supports tax avoidance. They know it’s good for you and good for the country. The government has social goals and uses the tax code to foster them. That’s why the government intentionally creates ways for you to legally lower your tax bill!

Take, for example, the social goal of people having money to take care of themselves when they’re no longer working. The government wants its citizens to be financially secure, so when you put money into a qualified retirement plan, you get a tax deduction.

Another example: charitable contributions. The government wants to promote philanthropy. It’s a social good. So when you make contributions to recognized charitable causes, you also get a tax deduction. To foster charitable giving, the government has created various tax benefits depending on the type of donation. For example, using a charitable trust to sell some of the equity in your business can enable you to get a tax deduction—as well as avoid capital gains taxes on that equity.

Most recently, the Tax Cuts and Jobs Act of 2017 created economic opportunity zones. The incentive for investors is tax benefits. The social goal is to increase investment in distressed communities and foster economic development and job creation in these areas.

Two Purposes of Tax Avoidance

When you’re using the types of tax avoidance strategies described in this post, you essentially have two purposes: To achieve your social and personal goals, and to mitigate your taxes.

Take retirement plans, for instance. Having money later in life is highly advantageous. So is taking current tax deductions. The money in a qualified retirement plan grows tax free—and there’s the possibility that you’ll be in a lower tax bracket when you eventually withdraw the money from the plan.

There are different types of qualified retirement plans. While most entrepreneurs are familiar with defined contribution plans such as a 401(k), fewer are as aware of defined benefit plans. Business owners could potentially benefit significantly from understanding the pros and cons of the different types of qualified plans.

Four Ways to Avoid Taxes

There are many ways to lower your income tax bill. In my book, Liquidity and You : A Personal Guide for Tech and Business Entrepreneurs Approaching an Exit, I discuss tax-related strategies and high-level concepts that may be beneficial as you look to reduce taxes.

A few of the strategies that entrepreneurs can benefit from include:

1. Qualified Retirement Plans

Money put into a qualified retirement plan is tax deductible and grows tax deferred. For various reasons, not all business owners set up qualified retirement plans. However, among those who do establish such plans, the tendency is to go with a defined contribution plan—such as the well-known and highly familiar 401(k) plan.

That move could be shortsighted, however. Defined benefit plans—or DB plans—might be much better for business owners. The reason? DB plans can allow business owners to put in a lot more money.

2. Charitable trusts

If you gift some or all of the appreciated equity in your business to a charitable trust and the trust sells it, the capital gains taxes on the equity will be eliminated. A percentage of the money in the trust can also be used to provide you (or someone you designate) with an income stream. Also—and perhaps most important—a nonprofit of your choosing will end up with funding.

The upshot: Charitable trusts are very powerful tools for entrepreneurs because they’re one of the few ways to eliminate capital gains when selling appreciated assets such as a business. They’re also a way for entrepreneurs to provide money to loved ones and charitable causes they care about.

3. Tracking Partnerships

Within the business world, disharmony among family members or unrelated business partners can also mean a higher tax bill if the owners are forced to divide assets. Through the use of sophisticated partnership structures, entrepreneurs can structure a division of their companies, eliminating capital gains taxes at that time.

As a general rule, any asset can be contributed to a partnership and can be distributed from a partnership to a partner, tax free. There is no need for disgruntled partners to continue to work together—and they pay taxes only on the businesses they control.

Finally, there are estate taxes. If you’re really successful, you might create enough personal wealth that you’ll owe estate taxes when you die. But with careful and thoughtful wealth planning, you may be able to significantly reduce—maybe even eliminate—future estate taxes.

4. Freezing the Value of a Business

You can lock in the current value of your business for estate tax purposes. If your company increases in value between now and when you sell it, for instance, the appreciation over that time will not be included in your estate—and therefore won’t be subject to estate taxes.

Additionally, it’s always a good idea to stress test your tax strategies. Stress testing is oftentimes done to make sure you aren’t missing any tax-related opportunities, especially since legislation has been changing rapidly in this area.

If you’re unsure whether your current tax strategies are optimized, we can help. Contact us at AG Asset Advisory, and let’s start the conversation.

Working With a High-Quality Tax Professional

All of these types of tax avoidance approaches are called “bright line transactions.” That means there’s no question about their legality, as they’re clearly specified in the tax code. Moreover, every knowledgeable and capable tax professional—lawyers, accountants, wealth managers and the like—should know about them and other ways to help you legally avoid or reduce taxes.

The catch, however, is that you must find a knowledgeable and capable tax professional.

You want to work with a technically adept tax professional who seeks to truly understand you—your personal and professional objectives and dreams, concerns, and anxieties. Armed with an in-depth understanding of your world, that professional will help you to design and implement solid tax-mitigation solutions.

Important: All high-quality tax professionals have access to the same legal tax mitigation strategies. Because of the formal government-created tax code, no strategies are secrets known only to a few. If someone claims to have a proprietary tax strategy, it’s a potential red flag that he or she could be veering into tax evasion territory. At a minimum, you should get a second opinion on that strategy’s legitimacy.

Best advice: Avoid taxes as best you can, using the advice of smart tax pros—but stay on the right side of that wall by steering clear of all tax evasion strategies and the people who peddle them.

If you’re unsure or curious about whether the tax mitigation solutions you have in place—or are considering—are working for you and to determine you’re not missing out on opportunities, contact us at AG Asset Advisory. We can start the discussion to get you pointed in the right direction.

*Disclosure: Tax laws are subject to change, which may affect how any given strategy may perform. Always consult with a tax advisor.


Anthony Glomski is Founder and Principal of AG Asset Advisory (AGAA), an SEC-registered family office. Some of the information, data, and opinions contained herein were not authored by AGAA and do not constitute investment advice. Content is provided solely for informational purposes only and therefore is not an offer to buy or sell securities, and is not warranted to be correct, complete, or accurate. Additionally, neither the author nor AGAA are engaged in rendering legal, medical, accounting, financial, consulting, coaching, or other professional service or advice in specific situations. This publication should not be utilized as a substitute for professional advice in specific situations. Neither the author nor AGAA may be held liable in any way for any interpretation or use of the information in this publication. Investing carries an inherent element of risk, including the risk of losing invested principal. Past performance is not indicative of future results.

Portions of this article came courtesy of my friends and colleagues at AES Nation, LLC.

© Copyright 2019. All rights reserved. No part of this publication may be reproduced or retransmitted in any form or by any means without the prior written permission of the publisher.

10100 Santa Monica Blvd, Ste 300

Los Angeles, CA 90067



T: (310) 907-9220

F: (310) 954-9865