There are money earners who pay their taxes regularly and there are corrupt ones who hoard their wealth and show forged accounts of their revenue. For those belonging to the first category, they can adopt ways to make good savings through legal means. To limit ones tax one can choose the strategy of making investments which provide tax free income. For example the ISAs or the Individual Savings Accounts introduced in 1999 in the United Kingdom are tax-free savings and investment accounts. ISA can be used to save cash as well as to invest in stocks and shares. The saved cash in an ISA will get tax-free interest. The shares invested in ISA are profitable as any capital growth and dividend income will be tax-free.

Basically, deciding on saving or investment will depend on the financial strategy of a person. Both are very different from each other. Saving money by bank deposit or building society deposit can earn interest. The other option, investment will have a different benefit. Shares can gain profit from capital growth when shares grow up in value. Investing in a share-backed plan such as a Unit Trust or taking a life insurance policy would earn dividend income. However, share investments have generated more income than anything else.

In India, Life Insurance is the best way to enjoy tax deductions on income tax and wealth tax. This is available for amounts paid by way of premium for life insurance subject to income tax rates in force. Maturity benefits are tax free.

According to Jeff Schnepper, the American author of the best-selling, "How to Pay Zero Taxes," the first key to smart investment tax planning is the recognition of the special status of long-term capital gains. Capital assets include stock, securities, real estate held for investment and most properties held for personal purposes.

Long-term capital gains :

Long-term capital gains are the profits from the sale of capital assets (such as stock or other investments) that you held for more than one year. The net long-term capital gains receive special treatment.

Federal, state, and local governments pay bond interest that is partly or fully tax free.

Municipal bonds :

Municipal bonds are bonds issued by the state or any subdivision of the state. They are not taxable for federal income tax purposes, i.e., no federal income tax is levied on the interest earned from municipal bonds. And if the bond is issued by the state in which the person lives, he or she does not owe state income tax either. For those who pay tax at the higher federal rates municipal bonds are advisable rather than corporate bonds. But being tax-free bonds they usually pay a lower rate of interest than taxable bonds.

There are certain risks associated with these bonds. At times, AMT or Alternate Minimum Tax is levied on municipal bonds. If interest rate on newer bonds is higher than the rate on the bonds already owned, then the owner might have to sell for less than par value if sold before maturity.

For profitable results always the first choice should be those investments which give higher after-tax returns. State tax rules are important in such cases as they can vary from border to border. Some states do not tax interest in municipal bonds within the state itself but may tax those outside their premises.

For tax-savvy investors there are a few friendly bonds which can earn and save money. With Roth IRAs, 529 plans, and education savings accounts, income tax is paid on the contributions made to the particular account, but no income or capital gains tax on income or earnings in the account, either as they accumulate, or when withdrawals are made, provided the person meets the conditions for those withdrawals. Savings bonds are introduced to help finance qualified higher education expenses. But they have their disadvantages as well.

US Treasury :

Investment earnings on US Treasury securities are free of state and local taxes. But the interest is subject to federal income tax.