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Tax shelter

Basically, tax shelters are investments that provide investors with the possibility of reducing their current income taxes through methods sanctioned by the tax law, thereby sheltering current income from tax. Although tax shelters offer an investor the opportunity to invest in many different kinds of assets and, thus, offer a wide range of potential benefits to their investors, the following basic aims are common to the vast majority of tax shelters: (1) maximizing the tax incentives available to the investors; (2) reducing current income tax liability and deferring taxation on any income or gain from the investment until some future tax year; and (3) permitting investors to use borrowed money to finance their original investments (leveraging). Some tax shelters satisfy all three aims, while other satisfy one or two; some rely heavily on their ability to satisfy only one of the aims.