What is a common strategy used to reduce tax liability legally?

Using tax-efficient investment accounts is a common strategy employed to legally reduce tax liability. These accounts, such as Individual Retirement Accounts (IRAs) or 401(k) plans, allow individuals to invest their money in a tax-advantaged manner. Contributions to certain accounts may be tax-deductible or grow tax-free, depending on the specific type of account. This means that the investment gains will not be taxed until they are withdrawn, which can significantly lower an individual's taxable income in the current year and potentially reduce their tax burden.

Additionally, tax-efficient accounts often help individuals save for retirement while minimizing the impact of taxes on their overall investment returns. By strategically using these accounts, taxpayers can maximize their savings and ultimately enhance their financial well-being while remaining compliant with tax laws.

The other approaches mentioned, such as not filing tax returns, underreporting income, and claiming false deductions, are illegal and can result in severe penalties, including fines and imprisonment.