How To Legally Avoid Paying Taxes (And Boost Your Career At The Same Time)

As daunting as taxes can be, the US Internal Revenue Service (IRS) gives breaks to persons who meet specific conditions, and allows them to skip paying taxes for a while. This is to encourage behaviors that boost economic growth, increase personal social welfare, and lighten your financial load, which can free up funds to invest in education and skill development.

An example is the American Opportunity Tax Credit (AOTC), which helps college students and their families cover the cost of higher education. If you are eligible, you get a sum for expenses like school fees and course materials. In the workforce, professionals can profit from the Lifetime Learning Credit (LLC) that advances lifelong learning while working.

There are employer-sponsored educational assistance programs that offer up to $5,250 in tax-free benefits per year, which can reduce the cost of acquiring new skills to advance your career. Also, strategic tax breaks like the home office deduction and training-related business expense deductions can help you invest more money into your business. To understand how these differ from illegal practices, it's important to know the difference between tax evasion and tax avoidance.

The American Opportunity Tax Credit (AOTC) is for students in the early stages of higher education. You can receive up to $2,500 per year to help cover qualified educational expenses. 40% of this credit is refundable. For instance, if you qualify for the full $2,500 credit but only owe $1,500 in taxes, you'd get the remaining $1,000 back as a refund. To claim the expected AOTC credit is straightforward, all you need to do is simply file an IRS Form 8863 with your Form 1040 tax return. Being a student doesn't equate eligibility — you must have actively attended classes for at least one academic period within the year. 

If you are an independent filer, ensure your Modified Adjusted Gross Income (MAGI) is below $90,000. If the filer is paired, $180,000 is acceptable. To calculate MAGI, note the amount you make from your job per year, and other sources before taxes. Subtract all funds set aside for retirement accounts, or money paid in student loan interest. Next, add other items like contributions to the IRA, tax-exempt interest, excluded foreign income, and Social Security benefits that cannot be taxed (unless you are in a state that taxes social security benefits). The final number achieved is your MAGI.

The Lifetime Learning Credit (LLC) gives a flat credit, up to $2,000 per tax return, and that's all. It's not as flexible as the AOTC. In contrast to AOTC's 4 years limit, LLC is limitless, and it also covers a wide range of educational expenses — tuition and enrollment fees — for both degree and non-degree programs, plus part-time courses.

The LLC has no threshold on course load, and zilch requirement for degree. There is a MAGI limit that LLC offers to individual filers. This is stipulated at $90,000. For joint filers, the stipulated amount is $180,000. LLC credits are non-refundable, and it's beneficial to any professional who is looking to upskill. To claim the LLC, you should file IRS Form 8863, alongside your tax return. Educators who file can claim up to $300 annually for unreimbursed classroom expenses.

Self-employed individuals can also have their job-related training expenses fully deducted as business costs. You just need to file either Schedule C, or Schedule A. It doesn't matter whether you're claiming business expenses, or going for itemized deductions, keep in mind that whatsoever may be, any educational pursuit that is not related to your current job or field of work, won't qualify for deductions. Also, you can't claim the deductions, unless your total expenses exceed 2% of your adjusted gross income.