Tax advantage refers to the economic bonus which applies to certain accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free.
Governments establish tax advantages to encourage private individuals to contribute money when it is considered to be in the public interest.
Tax advantages provide an incentive to engage in certain investments and accounts, functioning like a government subsidy.
In countries in which the average age of the population is increasing, tax advantages may put pressure on pension schemes.
In the United States, the rapid onset of Baby Boomer retirement is currently causing such a problem.
If this person is living in the United Kingdom, their pension could have tax advantages in the UK, for example, but not in the US.
Investment earnings in pension funds are almost universally excluded from income tax while accumulating, prior to payment.
One of the great advantages of annuities is they allow an investor to store away large amounts of cash and defer paying taxes.
Additionally, upon cashing the annuity out, the investor can decide to receive a lump-sum payment, or develop a more spread out payout plan.
In the United States, real estate investments yield considerable tax advantages.
[1] One benefit is the ability to regain the cost of income producing (for example, commercial real estate) properties through depreciation.
Oftentimes people wrongly assume that this $6 million is taxed at a capital gains rate.
Additionally, there are certain advantages within certain life insurance policies that are excluded from estate and/or inheritance taxes.
Additionally, investments in partnerships and Limited Liability Companies also have tax advantages.