Since there's a good chance income taxes in the US (at least federal income taxes) might be going away soon, I think it's proper to celebrate Tax Day by sharing our tips on how to legally and lawfully lower your income such that you end up owing no or little taxes. This might be the last time we get to do this sort of thing. One of the reasons I love America is because the tax code reads like a how-to book on Boston Tea Parties.
**None of this is tax advice. I am not a tax advisor. Go talk to your own tax guy or try it and see what happens at your own risk.**
The most important thing to remember is income taxes are taxes on income. Income is money you earn above all of your expenses to earn that money. If you're a wage-slave, you don't get to count much as expenses. They don't even let you count your commuting expenses as expenses.
The trick is to start a business. Now, the business only makes money above its expenses. And businesses get to count a lot more things as expenses.
Getting creative here is not hard. If you run a lawn care business, you need a truck to pull that trailer, right? You could get an old beat up truck that barely runs, or you can buy a nice new truck and it counts as an expense. Congratulations! you have a new truck and your taxes just went down by quite a bit.
If you have a C corp, then you need to hold a shareholders meeting every year. You might think that you want to save as much money on your shareholders meeting, but not so fast. You're allowed to go crazy on your shareholders meeting. That's why so many corporations have extravagant parties. They get to enjoy the party while not spending a dime, and especially not paying taxes on the money spent on the party!
If you don't know how this works, talk to actual tax guys. If you're making over $100k a year, you should be talking with a tax guy already, and you should've already started at least one side business. If you're only making less than that, then it's probably not worth the trouble. Your income is so low and the standard deduction is so good nowadays that you won't end up spending much on taxes even if you don't play the game.
In the end, you want some income but not too much. If you have too much income, you need to be spending that on your businesses. If you have too little, you're probably borrowing money to make ends meet, and the interest will eventually catch up to you.
Another important note: Should you mess up, the IRS can be pretty forgiving. Get a good lawyer, and see if you can negotiate your tax debt down, or get a payment plan. I emphasize again: **get a good lawyer**. Some people live their lives expecting to screw up their taxes and pay for it later. It seems the super-rich know that no one is going to get it right the first time, so they keep trying until the IRS settles with them and then moves on to the next year.
The only people who end up in prison are people who outright commit fraud or don't respond to the letters they send out. IRS problems don't go away, they just get worse, so lawyer up sooner rather than later.
And remember, if you want to fight the IRS, feel free to do so, but don't expect to win.
**None of this is tax advice. I am not a tax advisor. Go talk to your own tax guy or try it and see what happens at your own risk.**
The most important thing to remember is income taxes are taxes on income. Income is money you earn above all of your expenses to earn that money. If you're a wage-slave, you don't get to count much as expenses. They don't even let you count your commuting expenses as expenses.
The trick is to start a business. Now, the business only makes money above its expenses. And businesses get to count a lot more things as expenses.
Getting creative here is not hard. If you run a lawn care business, you need a truck to pull that trailer, right? You could get an old beat up truck that barely runs, or you can buy a nice new truck and it counts as an expense. Congratulations! you have a new truck and your taxes just went down by quite a bit.
If you have a C corp, then you need to hold a shareholders meeting every year. You might think that you want to save as much money on your shareholders meeting, but not so fast. You're allowed to go crazy on your shareholders meeting. That's why so many corporations have extravagant parties. They get to enjoy the party while not spending a dime, and especially not paying taxes on the money spent on the party!
If you don't know how this works, talk to actual tax guys. If you're making over $100k a year, you should be talking with a tax guy already, and you should've already started at least one side business. If you're only making less than that, then it's probably not worth the trouble. Your income is so low and the standard deduction is so good nowadays that you won't end up spending much on taxes even if you don't play the game.
In the end, you want some income but not too much. If you have too much income, you need to be spending that on your businesses. If you have too little, you're probably borrowing money to make ends meet, and the interest will eventually catch up to you.
Another important note: Should you mess up, the IRS can be pretty forgiving. Get a good lawyer, and see if you can negotiate your tax debt down, or get a payment plan. I emphasize again: **get a good lawyer**. Some people live their lives expecting to screw up their taxes and pay for it later. It seems the super-rich know that no one is going to get it right the first time, so they keep trying until the IRS settles with them and then moves on to the next year.
The only people who end up in prison are people who outright commit fraud or don't respond to the letters they send out. IRS problems don't go away, they just get worse, so lawyer up sooner rather than later.
And remember, if you want to fight the IRS, feel free to do so, but don't expect to win.
I'm completely illiterate on taxes and such and would like to learn more, appreciate the post.
Let me give a more concrete example.
Let's say you run a lawn care business. You bring in a net income of $100k. If you filed your taxes as normal, you would end up paying something like $10k in taxes (I am just setting a round number.)
Suppose you needed a new truck. You could delay buying it, or keep repairing your old truck. But in all honesty, if someone handed you $60k you would want to buy yourself a good, new truck.
So if you bought that truck as your business truck, then you income would only be $40k. Now your taxes are probably $0.
So, by buying the truck, you save $10k.
(I know, I know -- depreciation etc... Instead of buying the truck, lease it so that the full lease payment is an expense, or whatever. Talk to a tax guy first.)
This is the kind of thing every business does every year. They don't want to spend their hard-earned money on taxes. They'd much rather buy things the need to grow and expand the business, or even to make their lives a little more enjoyable. So as the year draws to a close, they go over their budget and finances and try to get their income much closer to zero. Or, if they are actually losing money this year, they might tighten the belt because they aren't getting tax benefits by spending it anymore.
Most of the "tax code" isn't even about taxes. It's what you can count as an expense under what circumstances. It's all about trying to get that income number as low as possible while still enjoying the fruits of your labor.
Likely they will use what they can against criminals so as long as you're not a smuggler or drug dealer you probably don't have to worry about it. Just don't commit fraud and lie. That's a crime, whether or not there is another crime.
If you want to risk it, I won't stop you.
You can always make more money.
If you make less than $50k, you probably will be fine. Just go to HR Block or whatever. They can probably help you figure out what you did wrong and how to fix it.
If you make between $50k and $100k, hire a tax accountant. You'll probably slip under the radar, but the tax accountant can give you valuable tips and help you get organized.
If you make more than $100k, you need to get a lawyer to help you navigate everything. you're probably wondering whether an LLC or a corporation is the right structure. You also need to figure out your will and such.