Which tax strategy is used to minimize taxes by timing income and expenses?

The correct strategy for minimizing taxes by timing income and expenses is tax deferral. This approach involves strategically choosing when to receive income and incur expenses to delay the tax obligation to a future period. By postponing income, individuals or businesses can potentially lower their taxable income in the current year, leading to less immediate tax liability. Similarly, by accelerating expenses, they can increase deductions for the current tax year, further lowering taxable income.

Tax deferral is commonly utilized through various retirement accounts, where contributions can reduce taxable income in the present while allowing investments to grow tax-free until funds are withdrawn in retirement. This strategy leverages the time value of money and can lead to significant long-term tax savings.

Other options encompass different concepts. Tax avoidance generally refers to legally minimizing tax liability but does not specifically address timing strategies. Tax evasion, involving illegal practices to avoid taxes, is not a legitimate strategy and has serious legal consequences. Tax elimination implies completely avoiding tax responsibilities, which is generally unrealistic and not achievable under most tax laws. Understanding these differences clarifies why tax deferral is the appropriate choice for timing income and expenses to optimize tax outcomes.