What is a "tax shelter"?

A "tax shelter" refers to a legal means of minimizing tax liability through various strategies that involve deductions, credits, and exclusions specified by the tax code. This approach allows individuals or organizations to reduce their taxable income, ultimately lowering the amount of tax owed to the government. Tax shelters are often used strategically and must comply with tax laws to be considered legitimate.

The concept is rooted in the idea that taxpayers can leverage specific provisions in the tax code to protect their income, investing activities, or assets from being fully taxed. For instance, certain retirement accounts, education savings accounts, and specific business expenditures can serve as tax shelters.

While the other options touch upon aspects related to taxes, they inaccurately frame the definition of a tax shelter. Hiding income or evading taxes involves illegal activities that do not fit within the accepted definition of a tax shelter, which is focused on compliance with tax laws.