How To Pay Little To No Taxes For The Rest Of Your Life

Save on taxes and go see Istanbul, TurkeyFor the past 10 years, I’ve been a buffoon. Ever since I was 25, I paid more than $100,000 a year in taxes. Even though I didn’t work for most of last year, I still paid over six figures in taxes. You don’t get a thank you card if you pay over $1 million dollars in taxes in case you’re wondering. Instead, you get the government hooked on your juice with fishing letters from the IRS asking for more!

I didn’t mind paying my fair share of taxes when I was in my 20s because I was excited to progress in my career. I felt lucky to just have a job that allowed me to save like crazy and help others financially through charitable donations. As I grew older, my views on income taxes changed.

Since the turn of the century, we’ve witnessed a devastating war in Iraqistan that by some estimates have taken over 1 million lives. We’ve observed Congress do nothing to pass a balanced budget since 2008 while giving themselves pay raises every single year. During the 2009-2010 financial crisis, the government doled out massive bailouts to institutions such as AIG while allowing executives to pay themselves millions of dollars. AIG even had the audacity to contemplate suing the federal government this year for wrongful terms! What the hell.

I felt sick to my stomach supporting such atrocities by a government who also discriminates against certain citizens while displaying no fiscal discipline. Why can’t we all be treated equally? I don’t know. When it takes 18 months for the city to fix a noisy and dangerous manhole cover, perhaps paying tens of thousands of dollars in state taxes is not worth it anymore. How about $5 bucks instead?

John F. Kennedy once said, “Ask not what your country can do for you, ask what you can do for your country.” Unfortunately, those words were spoken on January 20, 1961. Most of us weren’t alive then since the median age in America is only 35. I’m afraid our society has permanently adopted a one-way take, take, take mentality.

I think I’ve paid my dues. Unless you’ve paid as much in taxes, please don’t criticize me for writing an article on how to help you legally pay less taxes. To build wealth, we must minimize our expenses. Taxes are one of the largest expenses we’ll ever incur.


Besides earning less money, the best way to pay little to no taxes is to make your income equal your itemized deductions. Single filers get a standard deduction of $5,950 while married couples get roughly $12,000. Therefore, make $5,950 a year and voila! No taxes.

The problem is no single person or married couple can live off only $5,950 and $12,000 in income, respectively. Hence, forget about the pitiful standard deduction. Go for the itemized deduction which includes home mortgage interest, property taxes, and charitable givings. Obviously you need a mortgage to be able to pay mortgage interest and property taxes, so consider owning a piece of property already. The government subsidizes your ownership.

As for charity, give as much as you can. It is better to give to causes you are passionate about rather than pay more taxes to the government who ends up wasting your money. The Yakezie Writing Contest is a micro-giving example where we give 100% of proceeds to winning recipients for educational purposes.

The below are three examples with some notes on how to minimize your tax bill.


Example Of How To Pay Zero Taxes On Income
Passive Income (Replace With Active Income If You Like)
CD Interest Income$35,000
Dividend Income$25,000
Total Passive Income$60,000
Itemized Deductions
Mortgage Interest$30,000
Property And State Taxes$20,000
Charitable Giving$11,000
Total Deductions$61,000
Total Tax on Passive Income$0
Buffer for Other Income$1,000
Copyright 2013


* To generate passive income, you’ve first got to save a lot. You can replace my passive income examples with normal wage income if you like. The effect is the same.

* What is peculiar is that one still has to pay property taxes to the state. At least property and state income taxes are deductible and the money is not going to the federal government. You can choose to move to a different state to lower your tax liability. Changing citizenship on the other hand is much more difficult.

* A $30,000 mortgage interest deduction can be calculated as a 3% mortgage interest rate off of a $1 million dollar loan. If you recall from a previous article, a $1 million mortgage is the ideal mortgage amount if you can afford it. Some may poo poo paying interest, but I say paying interest with other people’s money to build wealth is much better than paying taxes to the government.

* For 2013 and beyond, if you have a modified adjusted gross income (MAGI) of $200,000 as an individual, or $250,000 as a married couple, you’ll also have to pay a 3.8% surcharge tax on all capital gains and dividend income. The government does not have the guts to cut spending, hence more taxes are inevitable.

* You might be wondering how does someone survive if their entire $60,000 in income goes to charity, mortgage interest, and property taxes? The answer lies in living off your savings.

* Important to note: The first $20K income for a couple is tax free as a result of the standard deduction and the personal exemption. If you are in the 10-15% TAX BRACKET you pay zero percent tax on long term capital gains and qualified dividends up to $72K. This was made a permanent rule for 2013 tax returns. So you can earn about $90 K and pay no taxes using those rules.


Example Of How To Pay Zero Taxes On Rental Income
Rental Income$50,000
Tax Shields / Expenses
Mortgage Interest$15,000
Property Taxes$8,000
Total Deductions$52,000
Total Tax On Rental Income$0
Carry Over Loss$2,000
Copyright 2013

* Owning a rental property is like owning a business. All expenses related to running your rental property are deductible from the rental income. Just be careful that deductions start phasing out after you make more than around $166,000 a year.

* A key part of the expense is depreciation. Depreciation is a non-cash expense to provide a fair way for the normal depreciation of your property.

* There’s no escaping property taxes again, but at least it is deductible. It’s important to convince the city your property is worth the least amount possible to pay the least amount of property taxes.

* It’s best to receive no rental income while you are in a higher tax bracket. Once you’ve retired, you’ll probably be in a lower tax bracket and should receive more rental income given your rent will be higher and mortgage intrest and amortization will be lower.


Example Of How To Pay No Taxes On A Business
Cost Of Cupcakes$10,000
Net Revenue$90,000
Operating Expense
Total OPEX$25,000
Operating Income                                                  $65,000
Solo 401k$30,500
Traditional IRA For You & Your Spouse$10,000
Total Retirement Deductions$40,500
Operating Income After Retirement Deductions$24,500
Tax Expense At A 30% Rate$7,350
Net Profit After Tax$17,150
Tax Shields At Your Disposal
Home mortgage interest$30,000
Student Loan Interest$2,500
HSA Contributions$3,000 individual, $6,000 family
Business Start Up Expensesup to $10,000
Copyright 2013

* Starting your own successful business is difficult, but one of the most gratifying things you can do. A lot of your normal living expenses can be considered business expenses. For example, you can have annual board meetings in Rio de Janeiro if you want. The flights, meals, and accommodations are all expensable. Nobody says your annual board meeting has to be in a place of suffering.

* As an employer and employee, you get to contribute $17,500 to your 401K + 20% of operating profits. In this case, $17,500 + $13,000 = $30,500 that doesn’t get taxed. You can also contribute $5,000 for yourself and for your spouse in a traditional IRA. Eventually you will have to pay taxes on these pre-tax retirement accounts, but not now.

* The business has a net profit after tax of $17,150, however you’ve got so many more tax shields at your disposable which can easily wipe out the tax liability.

* Business taxes are one of the most complex taxes to calculate. The above is just a simple example of how a cupcake owner with $100,000 in revenue might not have to pay any taxes at all. See the WSJ article on “How To Pull A GE” as another example.


Despite a tax code over 70,000 pages in length, it’s important for everybody to understand the basics of taxes. I’ve been using H&R Block at Home Online to do my own taxes for the past 8 years so I can understand the nuances and create pro forma scenarios such as: 1) What if I donated more to charity? 2) What if I accelerated my rental property depreciation? 3) What if I generated more income through dividends? 4) What is the income level I need to make where AMT doesn’t kick in? 5) What is my effective tax rate if I did not have a mortgage? and so forth. You will only be able to understand your own tax situation if you spend the time to do your own taxes.

Nobody cares more about your money than you. Save like mad to develop passive income so you don’t have to pay W2 income tax anymore. Move to a lower tax state or country. Start a business that you care about. Whatever you do, don’t sit around and let the government treat you like a punching bag. If you have the ability to relinquish all assets to a loved one and disappear off the grid, all the better!

Photo: Use your tax savings to visit potential clients in Istanbul, 12/7/2014.



Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. says

    I like the thought, but how does one live? The zeroing of income is using deductible expenses however eating and living etc are not deductible. In addition, there is the principal portion of the mortgage which is not deductible.

    • says

      Through savings. Not sure why you think the principal portion of a mortgage would be deductible. then there would never be any taxes to pay as everybody would borrow up to the exact amount of their income forever.

      • says

        Since you zeroed the income for tax purposes, there is no money to pay for the small portion of the payment that is the principal as well as food, clothes, utilities and other living expenses. All these things are not deductible.

        The only way you can legally reduce your taxes is to use depreciation as a way to shelter your income. Unfortunately, that runs out too.

      • Taco says

        Your savings will be with post tax dollars…so you’re not really dodging the taxes so to speak. Using deductions whereever possible is absolutely a good idea, but the idea that you can live on an income and deduct all of it isn’t realistic…you can’t deduct expenses you need. Yes you can have your deductions offset your income but then you’re living off of savings…which if your savings is insanely large, good for you…but as you built that savings, you paid taxes on it…

        Unfortunately, it’s death and taxes…

  2. Mike says

    I think anyway to reduce the amount spent to a runaway government is a good thing. I think that our government needs to start reducing the spending, and programs, and everything else that we have got and perhaps focus on the following: trade and war. Anyway, I think you’ve covered a good post here to find ways to reduce taxes overall.

  3. Ellie says

    In example 2 you have a line item for HOA. Is it really possible to deduct HOA fees on an Owner Occupied home? I pay about $3000/yr and would love to be able to itemize this expense.

  4. Mr says

    I think this article is geared toward a retiree…?

    Although starting a side business is a great way to optimize your taxes it seems. Despite all the rhetoric about “simplifying the tax code” … not sure that’ll happen in the next 40 years (my estimated retirement… I like working).

    • says

      No, this article is for anyone who makes less than $10,000 a year or who can reduce their higher income to zero.

      Did you know that people who make less than $10,000 a year from what is considered ordinary income are not required to file an income tax return ?

      If you go the IRS [dot] gov website and browse to Individual Taxpayer webpage there is a tool (webpage) that you can use to verify what I am saying is actually “TRUE”. People who make less than $10,000 are not required to file an income tax return.

      How can this be possible ? Well, if a person has ordinary income from one or more jobs, the employer takes out all necessary taxes and if done correctly where enough taxes (Social Security, Medicare, Income taxes) and a person makes less than $10,000 that person will not owe any income taxes after all deductions are made if they were to file an income tax return. Resulting in “no taxes due” on their income and no requirement to file an income tax return.

      Normally, this would only apply to people with ordinary income but, there is a way for people who are self employed to have the benefit of not having to file an income tax return. I say benefit because and as you will see, this opens a door for those who do not want to be part of ObamaCare or Medicaid. Yep, this is also true.

      Under the Affordable Care Act those who are NOT required to file a income tax return are not required to maintain health insurance. Its that simple !

      Forgot to mention the best part of all: You can file “EXEMPT” on your W4 and not pay income taxes all year just to get it back at the end of the year !!!!!

      Do your own research and you will see that you can also not file an income tax return providing you make less than $10,000 of ordinary income, however, there is a way for people who are self-employed to repeat the benefits of non-income tax filing.

      Its too late to effect your 2014 year income but, you can start on your 2015 self-employment tax quarterly payments. That’s Right ? Do you see where this is going ?

      As a self-employed person who makes less than $10,000 a year can file quarterly Self-employment tax payments and if you do it right ! You will not be required to file a Federal Income Tax filing at the end of the year. Now, this will not help those who have children and need to deduct losses and carry those losses to future years but, if you are like me ? Good-bye to filing Federal Income Tax forms and Good Riddance to OBAMACARE !

      Forgot to mention the best part of all: You can file “EXEMPT” on your W4 and not pay income taxes all year just to get it back at the end of the year !!!!!

  5. says

    I never understood the power that owning a business brings to doing your taxes until I marred The Wife. It was amazing that first tax year!

  6. Mark says

    Great article Sam. Definitely makes me interested in owning my own business in the future.

    Quick note, I think in example 2, you meant to say depreciation instead of amortization. Amortization refers to spreading the cost of an asset over a period of time; where depreciation is a non-cash expense that you prorates the cost of an asset (like you describe with the rental property).

  7. shaun says

    I love this site.

    A tip as I just started a consulting business and recently discovered that section 129 and depreciation is your friend. Especially if you have other sources of income besides your startup business. Bonus depreciation is an interesting subject that people with a small business should know about.

  8. Jay says

    Carrying a huge mortgage in order to cut down on your tax bill is one of the worst pieces of financial advice I have ever heard. You are basically spending a dollar to save 35 cents (after you exceed the standard deduction), while the rest of your interest payment goes to the bank. Sure, you can make the argument that everyone needs a place to live, but that is no reason to buy more house than you need in order to get a bigger tax write off.

    • Geek says

      Read the disclaimer :)
      I think this is about avoiding taxes, not about saving money overall. Bonus: get a really nice place to live at a slight discount.

      • nbsdmp says

        I have to agree, too much debt is what causes empires to fall. I could easily qualify and take $1M mortage on my home at some ridiculously low rate. Yes the math says do it, common sense says “are you freaking crazy, you have a paid for home”. The way to build REAL wealth is to be debt free, then build your alternative revenue streams. The goal with a home should be a roof over your head that gives you the lifestyle you want, a home is an expense, not an investment. Yes, there is a high probality that over time it will appreciate in value DO NOT COUNT ON THIS! Buy what you can afford & pay it off, once you do you’ll be shocked how fast your wealth accumulates! I love the general idea of being creative to pay less taxes, it is something I’m definitely spending time on.

        • says

          Exactly. The housing stock for ownership is so superior here in SF that I did not want to rent.

          Folks shouldn’t be afraid of a mortgage if they have the cash. It’s just accounting. I’d rather have $1 million to invest at over a 2.6% rate of return and be liquid and have the tax benefits than tie it up in a house. Of course, if you can’t afford a mortgage, don’t get it.

          Imagine living in your house and waking up 20 years later to find out you not only didn’t have to pay rent, your house actually made you money.

    • says

      In a vacuum, maybe. However Sam has at least a reasonable expectation of appreciation of his Bay Area Abode. In fact, the entire Peninsula saw some pretty insane appreciation in 2012 – so if Sam’s experience is anything like mine he’s sitting on a nice (paper) increase in net worth for his troubles.

      20% on a million dollar house is $200,000, enough for plenty of years of interest payments to your local credit union. your mileage may vary, of course!

      • JayCeezy says

        Sam’s strategy is extremely effective when the real estate property is appreciating, and the difference between the mortgage APR (i.e. 2.6%, wow! My first mortgage was 10.5%, and I thought it could never go lower after 5%) and the invested difference (stocks returned 7.5%/yr over 2011/12, for a net of 4.9%/yr) is positive. For the past two years, Sam would have benefitted at $78,400, plus whatever capital appreciation to his home would have been ($250,000 cap gains tax free for single filers, after 2 years occupancy of primary residence).


        However, when the real estate market declines 15%/yr, the equity investments also decline 10%/yr, and one realizes they are paying (in my case 5%/yr) for the privilege of losing money while paying for a home eventually sold for 30% less than one paid, I can feel pretty stupid! Um, I mean, one can feel pretty stupid!

        For the risk-averse, one might consider the investment directly into paying off the outstanding mortgage, an equivalent 2.6%/yr return, while freeing up cashflow and eliminating risk to that portion of one’s net worth.

        It’s like adjusting one’s sunglasses, once you get started there is no end to it!:-)

        • says

          But your house declines in value in a down market whether you pay the entire mortgage off or not! I’d much rather have $1 million liquid and NOT tied up in a house than the other way around.

          Also, the topic of this post is tax minimization not real estate investing. Up or down market, a mortgage will shield income from taxes.

        • JayCeezy says

          Absolutely. The $800K paying off the mortgage no longer produces passive income, but an implied return equivalent to the mortgage APR; tax minimization from the other side, no longer having to be offset by deductions. I wasn’t criticizing your decision, it makes excellent sense and you are doing just fine with your strategy. My real-life example is not for most, just the risk-averse.

  9. David m says

    I do not think I could afford it. Additionally, I think the ATM is likely to not allow you to bring your taxes to zero.

  10. geek says

    At some point I hope to reduce my taxes through legal means similarly to this, but at some point its money vs time (and you Sam have some money) so unless you find tax sheltering yourself inherently ‘fun’ it may be easier to skip some of the accounting and mortgage refis and just pay up. Not saying you should… I’m doing a refi though and its dreadfully boring. I have to remind myself about all the money were saving to do paperwork. But then in real life I make games so maybe my ‘fun’ bar is high. Or weird.

    • says

      It actually is fun to figure out the best way to minimize expenses while trying to live the most fulfilling life possible. After a certain point, we don’t need much more to survive. Everything else becomes almost like a game. Up to us to find a balance and do something if we are out of balance.

      • Taco says

        If you’re retired, good for you…make certain you look into trusts to hold your ownings so when you get old if you have medical needs the gov’t doesn’t get their claws on your bank account and assets and they are protected for any family or friends you will them to. Better anyone but the gov’t.

  11. says

    It really is mind boggling how complex our tax rules are. Understanding basics like the difference between standard and itemized deductions goes a long way. I love how we have software like H&R to help fill out all those confusing forms, and that we can use those programs as learning tools to see how various changes impact how much one could owe or get refunded. Each year I feel like I learn something new about taxes and even though it doesn’t make paying taxes less painful, it makes me feel more aware and smarter about how I use my money.

    • says

      My biggest annoyance is that the gov’t keeps CHANGING the tax code every single year, so that means there are more booby traps the gov’t can lay to penalize us.

      The IRS are really nice folks though. They know the tax code is ridiculous, but they won’t stop to charge sky high interest rate penalties and wait 3 years before they ask to maximize their returns!

  12. Steffen says

    Complex tax rules? Ha, I come from the country which produces about 2/3 of the world’s tax literature, or so they say. Someone will have to test if it works similarly in a country like Germany. (Go Steffen! Do it!)

    I hate taxes!

  13. says

    Great write up.

    I also feel sickened at the way in which governments waste money and support corrupt corporations rather than looking out for the people who put them into office.

    I always try to minimize my tax as best as I can, but I really need some good tax accountants like Google or Apple…

  14. says

    I pay 25% payroll taxes on my Canadian pay cheques but I get a lot from it (free health care).

    When I was watching your recent election I was amazed at how little taxes Mr. Romney paid. Your tax system is so different than ours that I did not understand it all but he makes a tonne (Canadian measure) of money but doesn’t seem to pay much tax. Lots of shelters and things off shore.

    Perhaps you need to find out who Mr. Romney’s accountant is?

    • says

      Jane, is 25% your top marginal tax rate? What’s your total effective tax rate? I’ve always heard Canada is higher, around 40%. If you’re only paying 25% in total income tax, that is GREAT! Exect a migration from Americans up north for free health care.

      Romeny makes money through long term capital gains. That is what we all need to move towards. Working for money is for fools, according to the gov’t.

      • says

        Tax deducted is based on income. I make less than 50k per year so I am at 25%. A coworker makes just under $100,000 and is taced at 40%. That is taken from every pay cheque.

        Then you try and reduce the amount of the tax that the government will keep by using deductions on your federal income tax forms.

        If you invest in registered retirement savings plans you can reduce the total amount of your income that will be taxed. Our government really wants us to save for retirement.

        Not sure about marginal and effective. Not words I use when discussing taxes.

        The main words we do discuss are deductions. Retirement, child care, child activities, public transit, etc. Lots of ways to reduce taxable income. We are not able to deduct mortgage interest.

        I am hoping some other Canadians jump in here with better explanations. I think we do pay more bet we get a lot more as well. My parents have higher health care needs now and they get to visit the doctor frequently and the government pays for most of their drugs. They don’t need help in the home yet but they can get that too if they want to stay in their home.

        • says

          It’s very important to differentiate between margina and effective.

          The effective tax rate for someone making $500,000 is around 30%. But, the highest marginal tax rate for someone making $500,000 is now 39.6% (anything over $400,000). Effective tax is your tax bill divided by total income.

        • says

          You ‘Mericans have us out numbered and we would be bankrupt in no time.
          We have pretty liberal immigration rules. If you are persecuted or hungry in your country you can apply to enter. If you have a skill we need or money to invest you are welcome.

          We have very strict gun laws and no second ammendment so you would have to leave your guns at the border.

    • JayCeezy says

      @Jane, Mr. Romney has paid more than 13% of his income to charities for the past 20 years, including $4 million (more than 29%) in 2011. That is on top of the 13.5% in Federal Income tax, plus he paid State, Property, and other tax. Hope this is of interest to you.

      • says

        I think I would be very happy if Mr. Romney was my neighbour or if my sons were friends with his sons. A very nice guy with a great family but he didn’t seem to have the fire in his belly to win an election.

        Canadians can deduct a per centage of charitable donations on the federal tax return.

        I am on the outside looking in at your economy and political situation. You are all fascinating but I am happy to live on the north side of the 49th parallel.

        • says

          A lot of Americans are wondering whether we can migrate up north during retirement to take advantage of free healthcare without having to pay a lifetime of income taxes. Thoughts on whether we’d be welcome?

  15. nbsdmp says

    I think what the goverment doesn’t get is that the people who are smart enough to be the top earners in our society will either figure out how to circumvent a the system, or just generally be disenfanchised and quit working so hard to earn more. Why be responsible and work hard to give to a goverment that proves they cannot grasp fiscal responsibility? I used to be happy paying my fair share, but when I hear our Pres. explaining how he wants to expand our goverment and entitlements it makes me sick to my stomach. My tax bill will go down guaranteed, my income will not.

    • says

      I read a study that a flat tax of 15% above a certain income level is the best tax rate to generate the most revenue because it is low enough for tax cheats to stop cheating, low enough for people to stay motivated, and high enough to maximize returns. Makes sense to me. Take out all deductions, tax at 15% and watch revenue surge.

      Just look at Hong Kong and Singapore with their 15-20% flat tax rate. Budget surpluses and their economies are booming. Unfortunately, we aren’t as small and nimble as them. So let’s look at RUSSIA! Huge country and also a flat tax of under 15%.

      • JayCeezy says

        Sam, you had mentioned that rate before, and I have read it elsewhere. Not asking for info you are uncomfortable discussing, but your conversation with the Undersecretary of the Treasury sounds very compelling. If you ever had thoughts on implementing that rate, and reconciling it with expenditures, I would love to read your analysis.

        So many variables outside of the ‘lab’, though, including population growth/decline, existing debt, and mainly the ability to enforce payment.

      • says

        A flat tax sounds like a great idea, but I just can’t see it happening. Beyond the ineptitude of the gov’t, there is a huge tax preparation and help industry that doesn’t want to see their business dry up when everyone only has to compute 15% of income to do their taxes!

      • Ilya says

        Actually, in Russia income tax rate is 13% for residents.
        However, if you’re operating a business as an entrepreneur you can pay either 6% (!!!) from net income or 15% from income minus expenses.

  16. says


    I’m about to turn 25, I’m helping my mom (claimed her as a dependent, and myself as Heads of Household), and have been saving as much as I could. I work full-time and run a business on the side for modest additional income. My mom found a part-time job last year and may have earned just about enough to push her outside the qualified dependent bracket, which suddenly changes my whole tax situation from Head of Household to Single. I thought that number was around $5,000, but it seems they lowered it to $3,850…sigh.

    Sadly I haven’t been able to save enough yet to buy a house (though I am gunning for it!), so no real option there to claim a deduction.

    • David M says

      Just remember – for each $ spent on interst – your taxes decrease by your top maringal tax rate. Thus, if you spend $10,000 a year in interest, your taxes decrease by only $2,500 (assuming your top rate is 25%). Addtionally, the “savings” only relates to $ above the standard deduction. If the standard deduction is $8,000 and your itimized deductions are $10,000 – your savings is only $500 (25% of $2,000).

      What I’m trying to say is – paying interest on a mortgage is not all its cracked up to be.

      Pay as little mortgage interst as you possibly can!!!!!

      • says

        It depends on income. Which is why around a $200,000 AGI is the best balance imo to take advantage of the deductions, stay under the populace and gov’t radar, and live a merry life.

        If you have to live somewhere, you might as well live in a nice place and take advantage of government gifts. The mortgage interest deduction is a secondary or tertiary benefit. The biggest benefit is living in a place you love where nobody can kick you out or tell you what to do.

        What’s your homeownerhsip situation again David?

        • David M says

          I own a condo that I bought 5 years ago with a 15 year mortgage.

          I have been paying extra on my mortgage and thus have paid off more than half of the principle in 5 years.

          I refinanced to a 10 year mortgage 3 years go.

          I was just trying to make the point that the mortgage interest deduction is not the panacea that some people think it is.

  17. says

    I hope they come w/ a fruit basket and find some unclaimed expenses and refunds they owe me!

    One of the government’s biggest worries is people waking up to see the truth. It’s kind of like the Matrix. The government needs to keep the people in a zombie-like stake in order to maintain control.

    The smartest thing the gov’t did was allow for massive ROTH IRA conversions to trick citizens into paying more taxes up front during the financial crisis. Genius by them. Silly rabbits for those who fell for their trick.

  18. FinanceGuy says

    Sam, you should write a post about what you did for a living and tips for recent grads who want to follow in your career footsteps! It seems like you made a lot more money than the average Joe.

  19. says

    Sam, These posts get better and better man! I paid very close attention to this one, since I am about to go from a six figure government job to a six figure CONSULTING gig for myself. And I am extremely worried about taxes! I’ll be reading this one over and over…

    • says

      Congrats on the new gig Tony! I hope you do get those six figures in consulting. You’ll pay less taxes for sure due to the business expenses, however, just make sure you compare what you have in cash or on the balance sheet after each month.

  20. says

    I’ve been considering a retirement vehicle for my TCI earnings to shelter them from the tax man while saving for retirement. I see you mention a solo 401k, but what other options are there? Do you use anything?

  21. Mike Hunt says

    Thailand has dropped all their tax rates for 2013… my effective tax rate is down to 23% or so… still over what I’d pay in the USA with the foreign income exclusions so all is well!

    Here’s to starving the beast a little bit more!


  22. Brian says

    “Ever since I was 25, I paid more than $100,000 a year in taxes.”

    So basically >$300k/year in income from 25 onward? That’s very impressive. What was your past life again (IB, HF, or PE)?

  23. says

    When it comes to business, it depends on the type of entity you form — LLC vs S-Corp. With LLC, every penny in income is subject to payroll taxes. But, with S-Corp, you will get K-1 from your company and you pay taxes on the income shown in K-1 along with your other personal income. So, it’s always better to form S-corp as pass through entity to avoid payroll taxes.

    By the way, Dr Robert Reich is suggesting a cap on the home mortgage deduction. So, I wouldn’t be surprised if these skillful politicians find it an amusing idea to spend more.

    • says

      S-Corp does seem better to save on the 12% in payroll taxes. Just gotta pay yourself a reasonable amount though. I wonder why entrepreneurs can’t get unemployment benefits…. or can they.

  24. says

    It seems the only way to do this is to own property. But I also imagine that owning property is more expensive than renting. Even though you’re saving on the tax deductions, you’re still saving on “interest” that is money you are losing to the bank. The business concept makes more sense, albeit requiring a lot of time. I make about $110k a year right now, s/o makes $0, so I don’t know if this would be a valuable exercise for me. I’m considering buying a condo right now and don’t fully understand the cost benefits versus renting, so need to do my research. Everyone says that the tax benefit of owning is so great but I try to do the math and it just doesn’t add up.

    • says

      Depends on where you are. It would literally cost 2X more to rent my house now that the interest and property tax I’m paying. Of course, I bought my house years ago. In SF, the breakeven is about 2.5 years. In many other places, it’s cheaper to own.

  25. Rob says

    A quick note on German taxes, it’s based generally on family income, so my wife earning 6 figures takes home approx 64%, of I worked I would lose over half of it. A single person usually loses around 50% to tax.

    Secondly while Germany is hurting due to an ageing population (mostly on healthcare), overall it’s doing very well, everyone and their brother from Spain is moving here.

    Very odd but Germans are a nation of renters, not unusual to meet people who’ve rented the same place their whole life.

    • says

      Best to get married then it sounds like! In the US we have a marriage Penalty tax. It’s crazy.

      Interesting insight on renters vs owners. Might want to check that to corroborate. In US about 62% own.

  26. Rob says

    BTW what about the minimum alternative tax?

    Secondly depending what province you live in you can earn up to 75,000 dollars almost tax free in Canada.

    • says

      The AMT is a tough one, but doesn’t really start hitting until after making $150,000 or thereabouts. With $150k you can bring your AGI down to around $100k or less and AMT will be minimal if nothing. It’s case by case.

      $200k is my ideal income for Max happiness. Much more and the government starts getting you and deductions start getting phased out.

  27. says

    Great post, I’ve been thinking along the exact same lines recently.

    After the standard deductions I have been thinking to donate increasingly large amounts to charities that fit my purpose, rather than allow the Govt to waste more of my tax dollars. I believe that you can donate up to 50% of your AGI which will wipe out taxes from all but the highest income earners.

  28. Mario says

    What percentage of the 1 percent own businesses? I feel that many of the one percenters make way more than 380,000, but use tax shields as the ones you described to show less income.

  29. says

    Interesting post Sam. I’m just not sure how capital efficient it would be to save up $100-$200k to sit around in a saving account earning no interest which you draw down to live on. I assume you aren’t suggesting selling capital assets like your shares that are producing dividend income, which you’d incur capital gains on, nor other capital assets that you would incur tax on from a sale. The potential “lost income” from that $100k sitting there possibly something like $5-10k /yr? But perhaps, based on the example illustrated, you have $60k passive income coming in anyway that this isn’t such an issue :)

  30. bryan cline says

    I know this is an older fourm but how much would I have to donate in order to pay no income taxes. I make less than 25k a year and have no assets. I just feel the feds are misusing my funds. This year (2014) will be the 1st year I will not get anything back due to being self employed.

  31. Olive says

    I just stumbled upon this forum. If I am planning to make dividends & capital gains my sole income (disabled, very low expenses, house paid off, not near retirement age), should I do it through a corporation (& which type, S-corp, LLC., etc?) or just as an individual? Which way would be most beneficial tax-wise? Any thoughts? Confused.

  32. andy says

    i am an 80 year old retired businessman. I am selling my business to my son under a formula that is good for both of us. this morning I received information on the business from my cpa and i am, paying on 250k. I was astounded at the amount. I do not want to go to work again on a startup company. I am an S corp.

  33. Asian-American Man says

    Hi Sam, thanks for the piece. I just wanted to add that a Solo 401k, while great, may not be applicable as most small-business owners who employ full-time employees will have to make equal contributions to all employee accounts. Of course, there are certain ways to circumvent this by hiring only employees who are non-resident alien, or union, or under 21, etc. but attempting to do so often ends up being more hassle than its worth. However, I would definitely recommend a solo 401k for anyone who’s an independent real estate agent, accountant, lawyer, tax professional or in any business only with their spouse and/or children as employees. As a retailer, I just don’t think the cupcake shop is the most fitting example here as its difficult to adhere to all the eligibility rules of a solo 401k in a restaurant business.

  34. Mike says

    Interesting article. If there was a way to have a decent income and not pay taxes, the government would shut that down in a hurry.

    I used to prepare taxes for individuals and businesses, and I have yet to see anything that really eliminates taxes beyond the obvious stuff like 401K contributions and charitable deductions. There was one return that I worked on where someone purchased some hideous looking yard sculptures, let them sit around for several years, had them appraised at pretty high values and then donated them to some organization. The taxpayer got the benefit of the appreciated value of 25K for each piece of “art”, which was probably BS and paid a lot less in taxes. I think the key to making this whole thing work is buying something from a semi-legitimate artist and then finding an appraiser who knows how to justify the high value of your unique art. Plus you really have to let the things sit around for a while to justify the appreciation in value.

    Other than that, the best way to avoid taxes is to have a small business and cheat. Buy a new car and say it is 100% business while keeping a junker that you claim is a daily driver. Cheating on your taxes is like speeding on the interstate, a little over the limit isn’t going to get you into much trouble, but too much will land you in jail.

    By the way, I will never admit to writing this article.

      • Nick says

        Well one option that’s rarely mentioned is to simply make less money. We made the decision to go part time last year, couldn’t be happier. We did the math and between federal, state, local, medicare, and SS taxes 40% of our income came off the top. Add transportation costs, over half our income is gone. Going part time put us in lower federal and state brackets, now we’re taxed about 25% of our incom3. Time is money, I’m not interested in being taxed out of 50% of my life.

        • Mike says

          Sad but true Nick, high tax rates take away the incentive to work. Take a manager job that pays 25% more than a worker job for example, the manager pays more taxes, has more responsibility, probably has to work more hours and probably has to pick up the phone during off hours. Is it worth it? For many the answer is no. Thank you progressive tax system.

  35. Mia says

    I have a few questions on paying little taxes.

    Let’s assume you have a well paying job and are able to put away 20k per year in a 401k (pre-tax). You also end up buying two rental properties.

    The rental properties produce about 30k but you have 15k in operating expenses as well as mortgage interest etc. You can then also deduct about 12k for property depreciation. So you would only have to pay taxes on about 3k (30k-15k-12k=3k).

    So now you decide to quit your job and roll over your 401k into a pre-tax IRA.

    You are able to frugally live from rental income and do not get a job again.

    In this situation:
    1) Is it possible to roll over a few thousand dollars from the IRA to the Roth IRA every year, just enough to stay in the 10% federal tax bracket? (e.g. 10k minus rental income)
    2) Would you be able to get free Obamacare Health insurance because your AGI is under 12k per year? (full subsidy amount for single filers making under 12k) Despite the fact that your income is obviously higher but your deducting most of it with operating expenses etc?
    3) To top it off, could you get a very low paying job for about 2k per year (think working for a few weeks in a summer camp or something like that) and contribute those 2k to a ROTH IRA, therefore qualifying for a $1,000 tax credit? (50% tax credit on up to $2k for single filers making under $18k) –> still insuring that the overall tax AGI stays around $10k/year to stay in the 10% tax bracket.

    Are there any flaws with my line of thinking?

  36. Pablo says

    “I don’t mind paying my fair share of taxes”. This is a mindset we need to change. Just what our “fair share” is have we become, like cattle, so used to?

    The 1776 American Revolution was started over a ONE PERCENT tea tax. There was NO personal income tax until 1913. When the Income Tax was first enacted, it was done so to pay for the costs of World War I. It was promised that once that war was over, the Income Tax would be repealed. It was not. Liars. When the Income Tax was first enforced, one had to make at least $40,000 to be taxed AT ALL…and was only taxed at ONE PERCENT. If you made $40,000 in 1913, you could live like a king! Yet today, the sheeple who struggle to make ends meet are content to be robbed, at what amounts to gunpoint, of a THIRD of their income by the government. Add state and local taxes and “fees” (disguised taxes) and we are raped and robbed of HALF our annual income.

    Abolish the current Income Tax system, which is now more oppressive than RUSSIA’s, and replace it with a low, flat income tax, with no loopholes.

  37. Kate says

    I understand bringing income to zero. But if you do that and you need a loan or a credit card with a greater credit line for your business–how do you do that? They ask for tax returns…tax returns that show zero income don’t float well with banks, credit card companies or mortgage companies. No financial institution seems to care about the amount of money flowing through your accounts. Just curious.


    • says

      You’re right. The answer is that you probably can’t get a loan. Get the loan first while you’re paying taxes, and then get that income down to a level where you don’t pay taxes.

  38. Mrek says

    This is easy.

    1) Move to Alaska or Florida
    2) Be or get married
    3) Earn up to $94,100 in Qualified Dividend Income

    Federal Income Tax = 0
    State income Tax = 0

  39. Alan says

    Just wondering if anyone could answer this. If I earned $40,000 at my job, would the federal income tax be roughly the same as if I retired and earned the same amount in only dividends? Thx

    • says

      Probably yes since the dividend tax rate is 15% and $40,000 income is also around 15%. You’re golden if you can get $40,000 in dividends. That’s a $1,000,000 portfolio at 4%. Not bad.

  40. says

    I like your examples Sam, but why not just live very low key? That 61,000 in passive income won’t have you paying more than $10000 in taxes (even living in California). I believe that we all should try to live by the old Spartan adage of never showing wealth. That Lamborgini over there? That’s for suckers… only making the Italians richer. So an extra $40000 a year is way better in my book–something a good investor could turn into over a billion dollars. And that’s power, and freedom to start great businesses for the sake of humanity.

    I believe almost everyone is capable of the following:

    Step one: get rid of all debt. Any debt over 4% get rid of it. Let’s face it, if you are not a spectacular investor, it is most likely not worth the risk. Without it, you’ll probably have a much clearer head anyway.

    Step two: Decide why and where you want to live.

    Step three: Locate suitable piece of land, water etc… Decide on a travel trailer, fifth wheel, boat, tiny house, stone house… As a slightly worse alternative, consider owner financing that land, renting it, or buying a fixer upper. But remember a house is not an investment! Thousands of dollars (I mean millions) in property taxes and maintenance are being discarded which could otherwise be put to use in the market or a hedge against inflation (Private gold/metals).

    All for quality of life or take a gamble on the corporate ladder? No thanks. I’d rather keep all my money than give 85% of it back to interest, taxes, healthcare, and living expenses. A personal business is a much safer bet, or an educated gamble with infinity times the reward. You must know that since you started this blog, right?


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