Question

Why were tax shelters popular before the tax reform Act of 1986? Briefly explain why tax shelter investments are not as popular today

** Answers no need to be long. Several sentences will be good. **

Answer 1

Tax shelters were quite popular before the tax reform act of 1986. This was because it enabled individuals and tax payers to take advantage of questionable deductions and lower their tax liability. It enabled legitimization of questionable schemes and protected investors from fraud penalties. Tax shelters first come into picture in the 1960s and became popular in a short time as it helped tax payers to reduce their current tax liabilities. It enabled tax payers to create artificial tax losses and that’s why it gained popularity and prominence.

Tax shelter investments have lost their sheen today due to the fact that tax payers now have options like tax advantaged retirement savings and deductible mortgage interests to reduce their tax liability. As such they do not have to rely on egregious tax shelters. Tax breaks are available and this makes the use of tax shelters redundant.