How To Get Rich And Not Owe Taxes.
Wouldn’t it be great to avoid income taxes? We can’t guarantee that, but here’s how to minimize what you owe.
The Statistics of Income Bulletin is a report published by the IRS four times per year. Known as publication 1136, it contains detailed analysis of returns filed by tax payers in previous periods. Each SOI Bulletin addresses different topics that the IRS believes are of interest to researchers, the public and nosey people like me. The most recent SOI Bulletin contained research that highlighted an eye opening trend among high income tax filers.
The Tax Reform Act of 1976 requires that the IRS publish statistics on the number of returns filed with an Adjusted Gross Income in excess of $200,000. It also requires a breakout of the percentage of these returns that did not owe any taxes and the reasons why no taxes were due on these returns. Given the economic climate in 1976 there may be more than a little bit of sour grapes in this law.
During tax year 2008, the most recent year for which data is available, the number of tax payers with an adjusted gross income (AGI) in excess of $200,000 who did not owe a penny in income taxes increased by 80 percent relative to 2007. Overall there were 4.4 million tax returns filed with an AGI above $200,000. Of these nearly 19,000 were from people who did not owe any income taxes on their high income. Even under the Alternative Minimum Tax calculation they did not owe anything. This is the largest number on record since the IRS began tracking these statistics in 1977. It’s one thing to not owe taxes because you didn’t make any money. It’s quite another to make lots of money and not have to share it with Uncle Sam.
To be clear, these people did make real money. Adjusted Gross Income measures the amount of money an individual earned (Gross income) and subtracts a long list of expenses including:
- The expenses of carrying a business which are listed on your schedule C.
- Health savings account deductions.
- Certain moving expenses.
- Half of any self-employment taxes paid. Self-employment taxes are tantamount to payroll taxes for self-employed people.
- Allowable contributions to retirement plans like IRAs, SEP IRAs and SIMPLE IRAs.
- And certain other expenses.
So if after all of those reductions in gross income you still have over $200,000 left then it’s clear you are making money.
