A tax shelter is a financial arrangement or investment that is used to reduce or eliminate taxes. Tax shelters can include things like deductions, credits, and exemptions, as well as investments in specific types of assets or businesses. Tax shelters are often used by individuals and businesses to lower their tax bill, but they can also be used to generate tax losses that can be used to offset other income. Tax shelters can be legal and legitimate, but they can also be used to evade taxes, which is illegal.