How To Feel Less Guilty About Paying No Federal Income Taxes

For the longest time, I've been a proponent of paying federal income taxes. Federal income taxes among all other taxes collected are used to pay for Social Security (~23% of budget), defense and security (~16% of budget), major health programs such as Medicaid and Medicare (~25% of budget), and other social safety nets. Somebody has to pay income taxes so it might as well be us!

However, when faced with having to do my taxes, I get bummed out that it takes so long. On average, I spend around four to six hours doing my taxes because I've got various assets to report. It's important that I check and recheck all my entries before filing to avoid as many mistakes as possible.

If only we could spend 30 minutes or less doing our taxes. Think about how much more productive our country would be! After six hours, then having to fork over a six-figure tax bill isn't the most pleasant experience. It’s like getting kicked in the crotch after you’ve been kicked in the face!

Given everything is rational, I have a desire to take things down a notch by the end of the year. I would rather make less money to have more freedom and experience less stress. Tax rates are going up and social safety nets are increasing.

However, there's still a weird part of me that feels guilty about paying less federal income taxes! It's almost as if I have Stockholm Syndrome with the government. Therefore, I decided to interview some millionaires who feel little-to-no guilt about paying any federal income taxes at all. Maybe you are one of them and can share your perspective as well.

How To Not Feel Guilty Paying No Federal Income Taxes

First of all, if you are unemployed, underemployed, or struggling to make ends meet, you shouldn't feel bad about not paying any federal income taxes. We all go through our ups and downs. The reason why we pay taxes is to HELP those who are temporarily down get through difficult situations.

Therefore, please utilize the unemployment benefits, stimulus checks, and government subsidies to the maximum. For many, 2020 and 2021 were extremely difficult times.

If you are a traditional retiree who has worked for 40+ years, I don't think you should feel guilty about not paying any federal income taxes either. Paying federal income taxes for decades is great! Thank you for your hard work. Further, there is a chance you might not live long enough to see the benefits of all you've contributed.

What I'm most interested in understanding is how millionaires who are relatively young feel OK not paying federal income taxes. It's the same thing as learning about how some FIRE proponents are OK with receiving healthcare subsidies, even though they are clearly not the intended recipients.

Profile #1: 41-year-old with two kids and a $3 million net worth

I haven't paid federal income taxes for five years since I retired at age 36. I don't feel guilty because I already paid over $500,000 in federal income taxes when I was working in IT.

Except for sending my kids to public school, we don't consume much of the government's resources. We also spend less than $50,000 a year.

We pay property tax each year which partly goes to our public school system, parks, sanitation, roads, fire department, and police department. In addition, we pay sales taxes and a small amount in state tax.

If the government was more efficient and less corrupt, maybe I'd be willing to pay more federal income taxes. However, when you have Elizabeth Warren claiming she was Native American to get ahead, Donald Trump paying only $750 in taxes the year he got elected and no taxes for 10 out of 15 years, and Congressional insider trading, come on now!

Why the hell would I ever feel guilty not paying federal income taxes when many of our leaders are corrupt?! I hope more of our leaders set a better example.

Profile #2: 39-year-old with no kids and a $1.6 million net worth

I haven't paid federal income taxes in the past two years. In addition, I get a 70% healthcare subsidy under the Affordable Care Act because our income is less than 200% of the Federal Poverty Limit. If we had no healthcare subsidy, a silver plan would cost over $2,000 a month.

I know we aren't poor, but I've got a chronic medical condition that prevents my husband and I from having kids or ever feeling fully financially secure. My job was damaging my physical and mental health so my husband, who is one year older, left his day job to spend more time with me.

I don't feel guilty that I don't pay federal income taxes because I already paid into the system for 17 years. Also, I have a chronic illness which I don't think anybody would wish for in order to avoid paying federal income taxes or get healthcare subsidies.

Our passive income generates about $35,000 a year, but we have deductions and credits to get our taxable income below $20,550 to not pay federal income taxes.

Federal Poverty Levels - FPL for healthcare subsidies

Profile #3: 43-year-old and 39-year-old with two children living abroad and a $2.5 million net worth

We haven't paid federal income taxes for over seven years because we live abroad. Based on the Foreign Earned Income Exclusion amount of $108,700 in 2021 ($112,000 for 2022), we didn't have to pay any federal income taxes. Why should we? We were not consuming any American resources.

Meanwhile, we actively did Roth IRA conversions when our income was down and strategically harvested capital losses to offset any capital gains. As a result, it was very easy to minimize or eliminate our federal income tax bill. We still had to pay some local taxes to the foreign government, as we should, but they were minimal.

When my wife and I plan to return to America, we will likely not have to pay federal income taxes either. The 2022 standard deduction amount is $25,900. We'll probably get a mortgage when we buy a house, which means we'll be able to reduce our income by the annual interest amount. Further, we get child tax credits for two children under six.

We will strategically earn most of our income from investment income, which is taxed at a lower rate. Further, we'll work just enough to cover our estimated annual living expenses of about $60,000 a year.

With how bloated and inefficient the U.S. government is, paying federal income taxes is a waste of money. I don't feel guilty paying zero federal income taxes at all.

2022 short-term and long-term capital gains tax rates and marginal federal income tax rates for married filers

The Net Worth Sweet Spot To Pay No Federal Income Taxes

I purposefully highlighted the perspective of three millionaires because they are in the sweet spot for paying minimal federal income taxes. In the past, I've wondered how millionaires can pay zero federal income taxes. But I realized that so long as your liquid net worth is under about $3.5 million and you're not working a W2 job or aren’t earning much from one, it's feasible.

After your liquid net worth is over $3.5 million, it's much harder to game the system to pay less tax. But of course, you could live in a $5 million mansion and have your entire $3.5 million invested in growth stocks that pay no dividends. If so, you could easily pay no taxes if you don't have W2 income.

The key to paying less federal income taxes is having not too much investment income and plenty of expenses as a business owner. You also need the appropriate level of income per household size to receive government benefits, as the Federal Poverty Limit chart shows above.

For a family of four, earning up to ~$70,000 a year in income gives them a great opportunity to pay no federal income taxes, especially if most of the income is investment income. However, if you're just a family of one, earning up to about $30,000 a year will also give you a good chance to not pay federal income taxes. In other words, you can live a Lean FIRE lifestyle and stop paying your income taxes.

Remember, the standard deduction limit for an individual is $12,950 and $25,900 for a married couple. The current maximum 401(k) contribution is $20,500 and then there are random tax credits. Such limits tend to go up each year.

Percentage Of Americans Who Pay No Income Tax

Below is a chart by Urban-Brookings Tax Policy Center that forecasts roughly 101.7 million out of 178.1 million tax units (households or individuals) won't pay taxes in 2021. That's 57.1%, an improvement from 60.6% of tax units that didn't pay taxes in 2020.

It's interesting the Tax Policy Center forecasts only 37% of tax units won't pay federal income taxes in 2031. I find that forecast to be highly optimistic since once you get something for free your expectations are set. But if the Tax Policy Center is correct, then this is a bullish data point for our future economy.

The number and percentage of Americans who don't pay federal income taxes in 2020, 2021, and 2022

Do You Feel Less Guilty Paying Less Taxes Now?

After conducting this exercise, I will feel a little less guilty if I start paying less federal income taxes. If I work less and make less, then of course I should pay less in income taxes. After all, most working Americans don't pay federal income taxes.

However, I'm not sure I'll fully be able to overcome the guilt of paying zero federal income taxes as an able-bodied American. This country has given me so much since I landed in the suburbs of Washington D.C. in 1991. I feel very fortunate to have had so many great opportunities to earn as an employee and now earn as a solopreneur.

Further, it's nice to make more than the $70,000 a year threshold as a family of four to pay no federal income taxes. My kids are young and we want to spend more money on education, food, housing, and trips, especially if I will be entering decumulation mode soon.

Perhaps after our kids have left the nest we will downsize to a smaller house and strategically reduce our income to lower our tax liability. My plan is to give away as much wealth as comfortably possible while living.

In conclusion, I still think everybody should pay some federal income taxes, even if it's just five bucks a year. Like donating to charity, it feels good to financially contribute something to help our nation. It feels great to have skin in the game. And if we can't contribute financially, hopefully we can contribute with our time.

Related posts on taxes:

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

Never Sell Assets And Pay Less Taxes Like Billionaires

Readers, would you feel guilty if you didn't pay any federal income taxes? If you don't pay any federal income taxes, how did you overcome the guilt, if any? I'll gladly add your perspective into the post.

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56 thoughts on “How To Feel Less Guilty About Paying No Federal Income Taxes”

  1. Federal taxes don’t go to help anyone. The interest owed on the debt (going back years, since no debt was owed) to the shareholders of the privately-owned Federal Reserve Banking System is much too large, much less the total debt owed.

  2. I cannot imagine feeling a moment’s guilt for not paying income taxes. In contrast, I would feel quite poorly had I discovered I had paid too much! Leaving aside amending returns and the like, I would wonder why I had mistreated my finances and neglected my obligation to structure my tax affairs so that only that which was rightfully owed would be paid, no more, and no less.

    The real purpose of this post is to express thanks for the newsletter piece about last minute software glitches in filing. This resonated with me in a very big way and while the software and the tax authorities ought to do better at improving themselves, there is some comfort, however cold and fleeting, in knowing that others run into these inexplicable, frustrating, and potentially costly walls. Thanks for the candor!

  3. Oh boy, here we go. Taxation is theft. I would love to pay no taxes. We didn’t even have income tax until 1913…along with the Federal Reserve. The two aren’t coincidental and only exist to enrich the banksters and bleed the working man for the leviathan we call today’s Federal government. Think about all the unenumerated ABC entities in DC full of people that produce nothing for society. Your polled millionaires all have the right idea.

  4. Another great article. I loved reading the perspectives/backgrounds of the three that contributed. It’s great insight into what others have been able to achieve. Also loved seeing everyone get so fired up in these comments pulling politics and race into it.

  5. If you’re working a regular job, you’re paying them anyway. It’s just about optimizing your W-4 so you don’t overpay throughout the year.

    I think people in general should pay them. Most people use government resources (e.g., libraries, parks, public buildings).

    The silver lining is, hey I owe taxes, that means I made money and borrowed some during the year. :-)

  6. As a veterinarian and small business owner in California I can attest to the high level of taxation on every level from personal income, property, local, and corporate taxes. The way I cope with it is I hope that the money is used in a very productive manner and can improve the lives of the less fortunate. I was always told as a young man that if you pay high taxes you must be making big money I might have to rethink this.

  7. You said this spot on “… I would rather make less money to have more freedom and experience less stress.”.

    Another well written article!

  8. Not sure you if you were making a statement of tax fairness or not between lower and higher income classes. But I feel strongly that any such discussion is greatly lacking without considering lower income people pay a large percentage of their income in local taxes that is usually a lot higher percentage than people with higher income. Looking at just federal taxes is cherry picking IMO.

    You could argue that they are different taxes for different purposes but I’d say lets then fix the local tax imbalance first before addressing federal income taxes. To be clear, make them both progressive taxes in that the more income you make the more you pay.

    1. Hi Travis – It’s the data we have that’s been provided by the IRS.

      Do you have the data on the percentage of lower income people pay in terms of local taxes? And what do you define as local taxes?

      I welcome a guest post on the subject. I think it’s a good one. I will help you edit it. It’s always great to have readers share their detailed thoughts on subjects they feel strongly about.

      The more we can all contribute, the better and more knowledgeable we all get.


      1. Hi Sam, thanks for the response. I saved this pdf link from the Institute on Taxation and Economic Policy (ITEP) from October 2018, titled “Who Pays: A Distributional Analysis of the Tax Systems in All 50 States”. They researched and presented the topic very well in my opinion. I had to review part of it again as it has been some time since I read it.

        As for what is contained in “Local Taxes”, the PDF implies this to be a combination of income, property, sales, and excise taxes. They break out each state and type of tax starting on page 31. They also specifically call out non-tax revenue items such as parking fees are “largely excluded” from the analysis.

        “On average, the lowest-income 20 percent of taxpayers
        face a state and local tax rate more than 50 percent higher than the top 1 percent of

        I really respect what you do and being willing to put yourself out there to further discussion on sometimes controversial topics, or on topics with many strong (also, political) opinions like this one. I am slightly ashamed to not be willing to do so myself, but for reasons primarily regarding my mental health, I must politely decline your offer to help me produce a guest post. But thank you for the offer.


        1. ““On average, the lowest-income 20 percent of taxpayers
          face a state and local tax rate more than 50 percent higher than the top 1 percent of

          Any idea how this is possible and the exact rates are? For example, California state income tax is progressive and goes from 1% to 12.3%. I guess I’ll have to read the article as it says

          “The nationwide average effective state and local tax rate is 11.4 percent for
          the lowest-income 20 percent of individuals and families, 9.9 percent for the middle 20 percent, and 7.4 percent for the top 1 percent.”

          So the question is, what can and will you do about it? Not only for your situation, but to help improve the situation. And what do you think is fair? Can you share your estimate tax bill?


          1. Sales tax in Culver City, CA is 10.25%. If you purchase a used car for $10,000 and pay $1,025 sales tax, that’s a huge hit to someone of lower income, e.g., for someone making $20,000 a year, that would be 5.125% of their entire income that year.

            For someone making $600,000 a year, the same sales tax on the same vehicle is only 0.17% of their annual income.

            While both people are paying the same state sales tax rate on the same vehicle, relative to their overall incomes the difference is vast.

            CA may be a bad example, as super high top marginal state income tax rates probably offset the relative impact of sales tax, property tax, vehicle registration fees, etc. But in states with low or no state or local income taxes, lower earners are indeed paying a much higher share of their incomes to various other taxes than the higher earners.

            This is exacerbated by the statistical fact that lower earners spend most everything they earn on consumption in order to live (much of which is subject to state sales tax) while high earners invest much of their incomes, paying little or no state sales tax on their investments at the point of purchase, and deferring capital gains tax indefinitely.

              1. But isn’t the sales tax example for the low income car purchase what the standard deduction is for to cover that type of thing?

                Also, unless disabled or taking care of someone, you would almost have to try (or not try) to only make 20K with current minimum wage and available jobs everywhere. Let’s not forget that as well.

                1. That’s true. No simple answers. I hope someone doesn’t buy a $10,000 car without a ~$100,000 income using my 1/10th rule for car buying. But most don’t follow my stringent rule.

                  I really enjoyed driving my $2,000 – $8,500 car for 10 years while making much more than $85,000. But everybody is different!

                  It’s hard to figure out a right way to help everyone.

          2. I live in WA state with notably the most regressive tax system in the US as cited in the PDF. We are probably in the upper middle class as far as income and most of that is coming from W2 income. Last year we paid $31K in federal income tax at a 12.39% effective rate (MFJ 3 kids). Our expenses are about $80K and probably only about half that is subject to sales tax (10.2%). We do pay about 6.5K in property tax on the house. And whenever we sell the house we would pay an excise tax of 1.78%.

            What is fair to pay should I think be driven by the needs we as a collective have decided upon (i.e. gov budget) and through a progressive tax system. Our family fits in above the median and so our percentage should be higher than most. Getting to an exact number is hard though given the multitude of taxes. I do wish the tax system was much simpler.

            Every state has a different tax system that would need to be addressed individually. WA has had multiple efforts to add an income tax* which would be more progressive but those are unlikely to pass any time soon and are often not well written legislation IMO. Solutions are hard. But I think everyone can advocate for making the system more fair for starters (e.g. supporting relevant legislative proposals). Personally, we donate to various causes in the area we live in to compensate for not paying a lot in local taxes.

            *There is one piece of legislation to tax capital gains over $250K that was enacted but is currently blocked by the courts. Not sure the state of it.

    2. I was going to post something similar until I saw your replies – with which I agree.
      Additionally, I believe that ALL income above a threshold (poverty level is way too low), should be taxed at the same rate.

      A dollar from cap gains, dividends, W-2, tips – everything, spends the same, why is it not taxed the same? (yes, I’m familiar with the ‘reasons’ special interests cited when they convinced Congress into this sweetheart deal, which is total BS).

      As for taxing unrealized cap gains each year, I don’t go quite that far as I think that would cause some additional challenges, but I do think it could something similar to the RMD (which is now 72), but along the lines of 10 years – any equities you hold 10+ years, each 10 year increment you pay taxes on the cap gains.

      The additional revenue from simple taxation – getting rid of the special treatments, would go a long way.

      As for the corruption – this too can be reduced (there will always be some) – term limits would be a good start.

  9. While I really enjoy your financial advice and opinions, but your political commentary makes me sad at the ignorance, bias, and lack of research you do. It makes me question the opinions you have I’ve always respected.

    + “we don’t consume much of the government’s resources.” This person would actually consume an incredible amount of the US Gov’s resources, regardless of the spending you make or where you send your kids to school. Everything from the transportation networks you use, to environmental and financial regulatory and enforcement networks, to defense/crime and foreign policy..
    + Defining our government as “corrupt.” Throwing out this loaded term really needs definition, because one could argue having just about the highest rates of inequality in an OECD nation could be seen as corrupt, but I assume the one you meant to use (conventional) is not true compared to most other countries. Just a trump talking point.
    + elizabeth warren native american comment: This is really a sad republican talking point and with minimal objective research, you’ll see independent confirmation it did not help her professionally and her entire family had been told inaccurate info on their ethnicity since childhood (like many Americans that I grew up). I think if you knew anything about her life, you’d respect the grit, determination, and intelligence to build a successful life from meager means. Oh, and why she transitioned from a conservative to liberal.

    1. Thanks for sharing your thoughts Zayne. I’ll be sure to pass them on to the three people I profiled who feel no guilt paying federal income taxes. They are probably reading the comments.

      Regarding one race pretending to be another race to get into school or get a job, I think we can agree it’s bad form not to be true to who you are. If you talk to minorities about how they feel if a majority pretended to be one of them, I think you might find a different tone.

      Are you a underrepresented minority?

    2. Zayne, as a fellow white person (I’m assuming you are white), I agree with your sentiment.

      Even if I have just a couple percentage of Hispanic, or Black, or Native American in me, and 95% European ancestry, I think I deserve to get the same admissions advantages as minorities. I don’t think I can claim Asian ancestry because it doesn’t seem like Asian people get any preferential treatment in schools or at work, despite only being 6% of the population.

      Our country has gone way towards emphasizing diversity, equity, and inclusion which is good. And I think my kids should benefit as well. So long as I learn the culture (and language if applicable) about the new race I am assuming, I think that should be OK.

      Let’s say I want to adopt the Hispanic culture, I also will respect the culture by telling my children stories about Hispanic folklore, the Chupacabra, and more like Elizabeth Warren’s parents did for her and she for her children.

      Whether we are White, Black, Hispanic, Native American, or Asian, I believe we should be able to be any race we want so long as we are even 1/1,024 Native American like Elizabeth Warren.

      We voted our politicians in. So if they want to conduct insider trading, grant sweetheart deals to their friends and relatives, and take their time solving problems, that’s our fault, not theirs.

    3. “Defining our government as “corrupt.” Throwing out this loaded term really needs definition… having just about the highest rates of inequality in an OECD nation could be seen as corrupt”

      Definitions of government corruption can’t be found. That’s why Sam didn’t provide any. It’s not like politicians just leave computers full of incriminating evidence lying around. In terms of the horrendous inequalities in America, at least open borders should eventually start having a positive impact in terms of the the growing homelessness and crime issues, especially in America’s poorest communities. Also, aligning with “legitimate” organizations like BLM through policy changes like defunding the police should also really start paying dividends soon in the poorest communities, especially those densely populated urban areas benefitting from one party rule and entitlement programs. We know through decades of data (or our truth) that lowered expectations never lead to lower production or worse outcomes. At least we don’t have to worry about women and inequality any longer since they can no longer be defined, and with biological sex being such a fluid social construct that all K-3 children are learning about in school. Back to those densely populated areas. They also provide A LOT of votes, but those in power would never consider buying votes because that would be the “definition” of corruption.

      1. I was shocked to see the BLM leaders but a $6 million mansion with the donations they received.

        A bad look.

    4. Just to let you know Zayne, as a black person, I’m pissed Elizabeth Warren pretended to be Native American to get ahead. Talk about cheating and taking advantage of the system. It wasn’t enough to cause genocide, but to then assume their identity? What?!

      You have no idea what it’s like being a minority in America, where you’re often excluded or looked over because you’re not part of the dummy minority.

      Don’t think for one second Elizabeth Warren didn’t realize what she was doing to try to help her get ahead. And if you really think that Elizabeth Warren had no idea about the benefits of saying she was a Native American and that she was innocent, then you are really are clueless.

      Cognitive dissonance at its finest.

    5. Well said. All of us, citizen and non-citizen alike, receive tangible and in-tangible benefits from Federal, state and local govts. Odds are those 3 families have a ‘comfortable’ lifestyle, all relatively young – yet they don’t feel guilty not contributing to the costs to help maintain that lifestyle? That’s sad and disappointing. Simply because you paid $x in the past does not get you a free ride for life.

      As for the ‘…game the system..’ link that Sam included, that’s disappointing as well. We should not be gaming the system, we should be fixing it. -and for the record, I paid 6 digits plus in Fed Tax for 2021 and the past many years and while I would like to see those ‘gaming’ held accountable, I never once would try to avoid my responsibility through such tactics.

      As for Elizabeth Warren (we are of the same generation) – I’m no fan of some of her politics, but like her, I heard stories growing up that we had some Cherokee in our family from when my mother lived in Oklahoma. She had a brother that definitely had some features that appeared to match. Many decades later, I had the 23 and Me test – no native American genes, just plain old Western European/Irish. Not that genetic make up of any % should be used for one’s identity definitions, but those that keep poking that stick, need to grow the F up.

      1. Tim, Are you another white male who finds that it is OK for white people to appropriate oppressed people for your gain?

        It’s no wonder why everybody is fighting against your kind. Clueless not not realizing what Elizabeth Warren did was terrible.

  10. This is a reminder that it is possible, and perhaps even desirable, to live a slim FIRE life. I’m so hooked on living FAT FIRE, and I Think I have been influenced by Mr. Dogan. Well, let me see. I think I will focus on living the life I have whether fat or slim Fire. Tax minimization should be key. I don’t know the amount I paid this year!!! $32,000 to feds alone! When do I get to relax a little? I guess when I decide.

    1. Yes indeed. You can pay little-to-no federal income taxes if you live a Lean FIRE lifestyle and live in lower-cost areas of the country.

      For the 45% or so of Americans who live in expensive coastal cities, living a comfortable Lean FIRE lifestyle is a much lower probability, especially if you have kids.

      I think you need $5 million and up now if you want to retire early and raise two kids in a city like SF or NYC.

      But certainly figure out how to reduce your taxable income. It’s only logical!

  11. Sam, I wonder what your thoughts are on proposals to tax net worth in addition to income? The administration seems to be considering something like this.

      1. Yes, for billionaires (which they want to define as $100M net worth).

        What I’ve noticed is that it always starts with “the rich”, then after a few years we’re all paying it. The income tax was like that, the AMT likewise, etc.

        I’m not sure why this would be any different. Unless one thinks the government’s ravenous appetite for money is going to abate for some reason.

        Since the majority of people don’t pay income tax, why wouldn’t they support it?

  12. Any good referrals for reasonably priced real estate investor friendly CPA’s? Finding one that doesn’t charge an arm and a leg for a small scale investor is hard to come by.

  13. So long as we have income taxes, I think everyone should have some skin in the income tax game, even if just a token amount. Otherwise they tend to feel they have no reason not to want taxes raised all the time, and no awareness that even they should not desire this.

    If someone pays no Federal income taxes but isn’t a hermit hiding in the wilderness, they are receiving something from the government’s largesse. I’m not against providing a safety net for our citizenry. Letting people die due to starvation, exposure, pollution and contamination, lack of law enforcement and a justice system, foreign attacks, and basic medical care (not talking heart-lung transplants but basic medical care), are all things society has indicated it finds unacceptable.

    Government is the instrument by which society exercises its will. For that reason, society needs to fund these things, if it can. The US, cannot, in all honesty, claim it cannot afford this if it is properly allocating its resources.

    Some people are, essentially, financial basket cases, and some portion of the population always will be. Society needs to accept that (While doing its best to minimize the numbers — which also implies society needs to support a great deal of public education and training, perhaps even internet-based college educations in specific majors).

    That said. My wife and I both earn wages (well under half our portfolio growth some years). And our marginal tax rate for the IRS is 24%. The state takes another 7% or so. Aside from the standard exemption, the only wages we avoid paying taxes on is the 30k that goes to our 401k plans. But that is only deferred, it won’t avoid Federal taxes (although if we move out of state it might avoid state income taxes).

    Federal and state income taxes are not all of it, though. We also get dunned for 12.4% Social Security tax on the first 118k, which for most of us is all of it. That your employer pays half of that is only another way of hiding the fact the entire thing is coming from income you would otherwise receive. We can potentially ignore Medicare by considering it as insurance, and therefore not a tax.

    For ourselves, we also must pay 12k in property tax on a small town house and New York sales tax on everything, even things we buy in other states and bring home with us.

    There is also city income tax, payroll tax, corporate tax, gift tax, gambling tax, federal unemployment tax, gas tax, cable and telecom taxes, air passenger duty, FCC subscriber line charges, car registration and licensing fees, corporate income tax, driver’s license fees, pet licensing fees, marriage license fees, hunting license fees, park entry fees, gas taxes, liquor taxes, and various things on cable bills and cellphone bills including an ‘Enhanced 911 Fee.’

    In some cases, companies passing taxes on to the customer have been forbidden by law to tell the customer that this is the reason for that portion of their bill.

    A lot of states have really unique hidden taxes. Maryland taxes septic tanks.

    Government hides endless taxes behind all kinds of euphemisms: documentation fees, service charges, entry fees, parking charges, equalization fees, licensing fees, pet licenses, hunting licenses, police and fire protection fees, etc.

    But the money just goes to the general budget. That means it is all taxes.

    I estimated that my wife and I are actually paying around 56% of our gross wages in taxes each year. Others, using a more formal methodology, have arrived at precisely the same figure.

    We used to laugh at the silly Europeans, who gave up half their income as taxes and only got healthcare, long vacations and paid maternity leaves, and a few other safety net things from it. The laugh is on us. We pay more and don’t get those things.

    So no. When I hold an asset, even one I would normally sell, just to avoid or defer paying capital gains tax on it. I don’t feel the least bit guilty.

    P.S. We also pay for products to help prepare and file our taxes. Why can’t we simply go do it on a government web site, with most of the information that the IRS already knows, already filled in, as in many other countries? Because the makers of tax preparation software have successfully lobbied Congress to prevent the IRS from doing that.

    1. Skin in the game really is important. And it feels great to be invested in something.

      But it really is up to everyone to feel how they feel about taxes and how much to contribute.

      The 60% figure was very surprising. If we do indeed move to “only” 37% of working Americans not paying taxes by 2031, that will be great for our country.

      1. 147k now? Heh, just makes me a little bit extra glad I turned down that offer from a big outfit downtown. The money would have pushed me well over either one of those figures, but the stress and quality of life issues made it a non-starter for me, at this stage of my life. Plus, my wife would have shot me.

        I don’t know for sure what will happen to Social Security in 2034 (I think they will save it), but with RMDs kicking in not long after that, I don’t think we would/will miss it if it comes to that.

        Of course, with everything going on in the world in politics, economies, technology, and pollution\climate change, all anyone can do is take their best shot at it (be proactive), keep an eye on things and hope for the best (be inactive), and be ready to adapt (be reactive).

        1. Can you work remotely?

          I pay $2,500/year property tax on (what Zillow says) is a 3,000 sqft. 3BR/3BA townhome.

          State income tax here in NC used to be relatively expensive (7% @ your income level) but is now a flat 5% in 2022 gradually declining to a flat 4% over the next 5 years.

    2. My Parents lived in Hamburg NY 180K house 12k property and school taxes. WNY folks say for last 60 years “I re buy my house every 15 years with school and property taxes”. I live in Easton Maryland 500k house $1600 property/ school taxes for last 22 years. Our septic tank is tax free. People from NY and NJ shop RE on eastern shore of Maryland. When the RE agent says taxes on million dollar house are $3000 the NJ folks say not bad for $36000 a year. No the $3000 is annual. Response darn been had in NY or NJ my whole life. I enjoyed my free NYS college and moved to DC area jobs in 1978.

  14. Speaking of taxes, it sounds like democrats want to repeal the 10K SALT cap. SCOTUS decided they will not hear a challenge on it. For those looking to upgrade property in expensive high tax states like Cali, the cap is prohibitive, especially for those looking to maximize the government’s real estate subsidy with Sam’s 750K optimal mortgage (for those that can afford it).

    1. Repealing the $10,000 SALT deduction will be great for expensive city residents, especially on the coasts. An X factor positive not enough folks are considering.

      Thanks for the reminder!

      1. About half of the states have a “work around” for the “wealthy” to deduct their SALT in excess of 10,000, for example California’s AB150. Given this SALT Limitation expires in 2025 and the options states have created any repeal will have muted effect on the market. IMHO

  15. Hasan Faraby

    Hi Sam,

    Thanks for the nice post.

    Should primary residence be included while calculating net worth ?
    My understanding is it should not be included since it is a consumable item(living in it is like consuming it, similar to food) and generally do not provide a traditional income (W2, Dividend, interest, etc.)

    What do you think ? curious to know…

    Best Regards

    1. I believe it should be included in net worth calculation, whether you own it outright have a mortgage against it. It’s a capital asset that *should* appreciate in value, and build equity, which can be borrowed against in times of need.

      1. High transaction costs, though, given its illiquid nature…one should discount its estimated value by ~10%.

        Also keep in mind it’s now cheaper to borrow against one’s portfolio negotiating with one’s broker (e.g. margin loans under 1.5%, or a pledged asset line under 3%) than one’s house (now over 5% for a 30-year fixed rate mortgage)

  16. Tax filing could be much easier but those who profit off of the process (tax software companies, accountants, lawyers, etc.) lobby hard to ensure the process never changes. The govt could easily send each and every one of us a completed form with all of the information that they have received and then we would only need to make any necessary changes. For those Americans who can already use a free file program, it would be as simple as signing their name to confirm agreement and returning the form (electronically or by mail). I find it very frustrating that in order to report summaries of stock sales, I also need to send in an attachment detailing individual sales, when the IRS already has the same information.

    1. I forgot to file one year when I lived overseas so they did just that. In spite of knowing the number of dependents, their age, etc. they sent out a pre-filled form for me to sign with zero dependents, no deductions (including the Foreign Earned Income Credit – in spite of the fact they mailed it to an overseas address).

      I just threw out their form and re-did it. In the end, they owed me tens of thousands in refunds and credits.

      The government has zero interest in getting your taxes correct. Let’s keep things the way they are now, please. Simplify things? Indeed. But let the government calculate your tax bill? NEVER.

  17. Would love to see an article on the best ways to reduce tax liability if my main income is still W-2, but my passive income is tracking to take it over in the next 10 years.

    1. As I approach the upper limit of the 22% MFJ tax bracket, I look to maximize my tax deferred income by contributing to my employer’s traditional 401K, as a principle W2 earner. Although I do have a home w/ a mortgage, the annual mortgage interest does not exceed the new standard deductions set forth in the change in the tax law from 2017. For passive income (investments), I direct my fund managers to “harvest” only so much income per year, so that I don’t go bust through that ceiling of that tax bracket. To successfully transition from an active to a passive income stream, it’s best to do so with Capital Gains type of earning, vice “earned income” streams.

  18. I’ve been paying Fed and state taxes pretty much since I graduated university. So it never even occurred to me that I may not in the foreseeable future. I do try and minimize my tax liability but I’m not a business owner so I don’t have things like expenses to write off.

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