Paying taxes is a legal obligation, but that doesn’t mean you need to pay more than the law requires. Both individuals and businesses can reduce their tax liability through legitimate planning.
Some of the best ways to avoid paying taxes include claiming available deductions and credits, and even relocating to countries with more favorable tax rules.
This guide outlines the top strategies for reducing tax exposure and provides actionable insights on how you can optimize your taxes without breaking the law.
How to Avoid Paying Taxes: Key Takeaways
Can I legally refuse to pay taxes?
No, you cannot legally refuse to pay taxes. However, you can reduce your tax burden by using strategies such as tax deductions, credits, and tax-deferred shelters. This practice is known as tax avoidance.
Complete elimination of taxes is rare because most jurisdictions require minimum taxable income reporting and enforce anti-avoidance rules.
What is tax avoidance?
Tax avoidance is the legal use of financial strategies to reduce your tax liability. This can include claiming deductions, investing in tax-advantaged accounts, or relocating to a country with lower taxes. Tax avoidance follows regulations widely practiced by individuals, corporations, and even governments.
What’s the difference between tax avoidance and tax evasion?
Tax avoidance is distinct from tax evasion, which is the illegal practice of deliberately failing to pay taxes owed through fraud.
Tax evasion means illegally concealing income, falsifying records, or failing to report assets to avoid paying taxes altogether. It is a criminal offense and can result in severe penalties, including fines, audits, and even imprisonment.
An example of tax evasion is a digital nomad based in the United States who earns $150,000 in a year by working with international clients. However, when he files his annual tax return, he reports only $50,000 of that income to the Internal Revenue Service (IRS). He is intentionally not mentioning the payments, hoping the income will go unnoticed and not be taxed.
Seven Ways to Avoid Paying Taxes Legally in 2026
Here are seven common ways to avoid paying taxes legally:
1. Claim self-employment tax deductions
Self-employed individuals can often reduce their tax burden by deducting eligible business expenses and, in some cases, part of their self-employment taxes.
In the United States, for example, freelancers and business owners may deduct certain costs, such as operating expenses, from their taxable income. They may also be able to deduct a portion of the self-employment tax itself, which helps lower their tax liability.
This practice applies to individuals operating as:
- Sole proprietors
- Partners in a partnership
- Members of a limited liability company (LLC)
- Individuals reporting self-employed income on their tax return
While the exact rules vary by country, several jurisdictions, such as the United Kingdom and Portugal, allow self-employed individuals to offset business-related expenses against their income, thereby reducing the income subject to tax.
2. Deduct eligible business expenses
Self-employed individuals can reduce their taxable income by deducting eligible business expenses, such as office supplies, travel, marketing costs, and home office expenses.
To claim these deductions, it’s important to keep records and make sure all expenses are related to your business activity.
Some countries also allow simplified methods for certain expenses. For example, in the United States and the United Kingdom, you can deduct business driving using a fixed rate per mile, rather than calculating the exact costs of fuel, maintenance, and other vehicle expenses. This simplifies the process, as you only need to track the number of business miles driven.
In countries such as Portugal, Spain, and Germany, education or training costs and business-related travel may be deductible if they are directly related to your current professional activity.
Because the rules vary, you should always follow the tax regulations in your country of tax residency.
3. Contribute to a retirement plan
This is one of the simple ways to legally avoid or underpay taxes. There are two common ways to do this if you’re an American citizen:
- Contribute to an IRA (Individual Retirement Account): With a traditional IRA, you will not have to pay taxes on the money you contribute until you withdraw it in retirement. The age for withdrawal is 72.
- Contribute to a Roth IRA: With a Roth IRA, you’ll pay tax on the money you contribute now, but you will not have to pay tax on it when you withdraw it in retirement. The age for withdrawal is 59 and a half.
For example, if you, as a worker in the 24 percent tax bracket, contribute $10,000 to your IRA, you will save $2,400 in income tax that year.
4. Contribute to an HSA
One of the best ways for American taxpayers to minimize their retirement savings is to contribute to a Health Savings Account (HSA). An HSA is a tax-advantaged account that can be used to pay for qualifying medical expenses, including insurance premiums.
Contributions to an HSA must be made with pre-tax income, which means they lower your taxable income. If you use the money in your HSA to pay for qualifying medical expenses, the withdrawals are tax-free.
There are a few things to keep in mind if you’re thinking about contributing to an HSA:
- First, you must enroll in a high-deductible health insurance plan (HDHP) to be eligible for an HSA.
- Second, there are contribution limits for HSAs. For 2023, the contribution limit for a freelancer with self-only HDHP coverage was $3,850, while the contribution limit for freelancers with family HDHP coverage was $7,750.
- And finally, you’ll need to designate a beneficiary for your HSA when you open the account.
5. Change your tax residency
If your home country taxes you based on residency, not citizenship, relocating to another country can reduce your taxes
Most countries, including those in Europe, use a residency-based system. This means you are taxed where you are considered a tax resident. If you leave that country, meet its exit rules, and become a tax resident elsewhere, your original country stops taxing your foreign income.
This is why some individuals move to jurisdictions with no personal income tax, such as Vanuatu, Saint Kitts and Nevis, or Antigua and Barbuda. In these countries, income earned abroad is not taxed locally, resulting in a significantly lower tax burden.
Citizenship can be obtained in those nations through citizenship by investment programs, with no residency requirements and relatively fast processing times.
However, this does not apply to everyone. For example, citizens of the United States are taxed on their worldwide income regardless of where they live. In that case, moving abroad or acquiring a second citizenship does not eliminate U.S. tax obligations.
6. Donate to charity
By donating to a registered charity or private foundation, you can receive a tax receipt, which you can use to reduce your taxable income.
To ensure that you maximize tax savings when you donate to charity, there are a few things to be mindful of:
- Make sure you donate to a registered charity. You can verify a charity’s registration via the website of your country’s tax authority. A tax authority would be the Internal Revenue Service(irs.gov) in the US or gov.uk in the UK.
- Keep track of all your donations so you can present your receipts upon request.
- Make sure you declare your donations when filing taxes to receive the maximum benefit.
Donating to charity is a great way to reduce taxable income and support those in need. Although charitable donations don’t generally save you money, many of us appreciate having greater control over where our taxed income – or non-taxed income in this instance – is distributed.
7. Claim Child Tax Credit
The Child Tax Credit is a refundable tax credit available to tax-paying parents with dependent children under the age of 17. It is worth up to $2,000 per child and can be claimed yearly when filing tax returns.
To qualify for the maximum tax credit, parents must have a gross income of under $200,000 for single parents and $400,000 for cohabiting parents. Each child must have a valid Social Security number. Additionally, the child must reside with the taxpayer for over half of the tax year.
