Trickle Down Economics at Work: How to Pay Zero Taxes

Thursday, January 7, 2010 , Posted by Johnny Fuery at 1:09 AM

Originally Published 2007-07-17 18:56:39

I'm an incredible procrastinator when it comes to filing my tax returns. My 2005 return is going out today, as a matter of fact.

I know, I know, all this talk about good business practices, and the supposed "really smart guy" doesn't even take care of the simplest of civic duties.

Ahem. I prefer to look at it as a matter of priorities -- I have so much to handle every day that often the administrative overhead just falls by the wayside. So I collect receipts, stuff them in a cabinet, and then sort them all out at the end of the year. Er. The end of next year. Or something like that. But anyway. That's not the point of this post.

The point is that the US tax system rewards investment in business activities. In some ways, this makes sense -- I fed around 5 people from my operations that year. (It was a lot more than that in terms of the quantity of vendors/contractors, but I wasn't the sole provider for any one of them. In other words, I worked with, say, 25 vendors for one-fifth of the year.) I also pumped more money into the economy than I could have ever accomplished by simply working my day job and paying a third of it to Uncle Sam as income tax.

So, while this post is quite short as a primer on how to pay zero taxes (It was admittedly linkbait, however if you want to see that, leave a comment and ask me for it!), I thought I'd post the pleasing portion of my TurboTax summary page.

Bet you've never seen a summary that looks like this:

2005 Tax Summary

It's mostly from real estate depreciation, which is a non-cash write off.  That means there are "passive losses" from my real estate management business that aren't actually paid out of pocket. It's actually tax deferral, not tax avoidance, because if I ever actually want all this work I'm doing to improve my lifestyle someday, I'll be subject to capital gains taxes.

Oh, and don't worry, I'm not really freeloading the system. I paid more in local, county, and state taxes in 2005 than Barry Bonds spent on steroids. (Believe me, I was personally astonished at all the numbers when I went through my calculations. I spent how much on what?!)

Still, there's probably an argument that this is unfair here somewhere... but that's a topic for another day and another blog. Probably one focused on politics. 

Comments

On 2007-07-20 14:01:52 Mark Hughes said:
There is no reason to be apologetic for your tax situation. Savvy tax preparers will give you the tax write offs that you deserve...and there are many. For example, I bought a motorhome to rent out. I generate a 15% return on my investment and receive a hefty tax deduction in the form of depreciation. I take clients used to paying quarterly payments and reduce their tax bill to zero because of the interest and depreciation deductions. If you know your way around the system, you can forgo the payment of taxes....just like the rich do. The good news is that you don't have to be rich, you just have to be knowledgeable. The next big step is how to exit out of your highly appreciated real estate when the time comes...and it will. Most people get to the point that they are asset rich and liquid poor and when you are entering retirement, you want more liquidity. We provide exit strategies that help people reduce their tax bill when they sell their business or investment properties that are subject to capital gains tax. You can do the same. Get smart, get educated. Learn that there are options to 1031 exchanges. mark@virtuositypro.com

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