By Dr. James M. Dahle, WCI Founder
Taxes are part of life and many good things are done with tax dollars. But as Judge Learned Hand said, “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes.” I pay every dime I owe in taxes, but I'm not going to leave a tip. If you feel the same way, check out these tips to lower your tax bill.
How to Reduce Taxable Income
Remember one of the most important principles of financial planning–the goal is to have more money after paying taxes and living the way you would live anyway, not just to pay less in taxes. These tips can all reduce your tax bill, but will not necessarily leave you with more after tax if you would not have done these things anyway.
#1 401(k) Contributions
The biggest tax deduction available to most doctors and other high earners is to simply save for retirement. Tax-deferred retirement accounts like 401(k)s and 403(b)s allow you to save money at your currently high marginal tax rate, protect those investments from taxes and creditors as they grow, and use account withdrawals in retirement to fill the lower tax brackets. The lifetime tax savings is likely higher than the amount you contribute to the account.
#2 Cash Balance Plans
If being able to contribute $19,500 to $64,500 into a tax-deferred 401(k) is good, how would you feel about contributing another $10,000-200,000 into another tax-deferred account? Pretty attractive, right? Enter the cash balance plan, which is basically another defined contribution plan masquerading as a defined benefit (pension) plan. You can have a personal one as an independent contractor, your partnership can put one in place, or you can talk your employer into offering one as a benefit.
#3 HSA Contributions
Imagine a 401(k) where not only did you get the tax break up front and the tax-protected growth, but you also got to have tax-free withdrawals? That's how a Health Savings Account (HSA) works, at least when it is spent on health care. Even if you don't spend it on health care, there is no penalty to withdrawing the money after age 65, so it is at least as good as your 401(k).
#4 Self-Employed Health Insurance Deduction
One of the largest deductions for many partners, independent contractors, and other self-employed folks is the ability to deduct your health insurance premiums.
If you're paying anywhere near what I'm paying for health insurance, this is a huge deduction for you. Your employer deducts these premiums as a business expense, so if you are your employer, you can too!
#5 Deferred Compensation
Some employers offer plans that allow you to defer your compensations for years or even decades. Among doctors, these usually take the form of 457(b) plans. Like a 401(k), you get to choose and control the investments. Unlike the 401(k), it is still your employer's money and subject to your employer's creditors. A little caution is warranted, but most doctors use these plans if they are available to them, especially if offered by a governmental employer.
#6 The 199A Deduction
The 199A (pass-thru business) deduction is the largest deduction on our taxes. This is a deduction equivalent to 20% of ordinary business income and was put in place as part of the 2018 Tax Cuts and Jobs Act to equalize the playing field between C Corporations and the pass-thru business entities like sole proprietorships, partnerships, and S Corporations (and the LLCs taxed as any of the above.) For those above certain income threshholds (taxable income of $164,900-264,900 single, $329,800-$429,800 married), certain professionals (doctors, lawyers, financial advisors etc) are excluded from this deduction. Even if not excluded, it is limited to an amount equal to 50% of wages paid by the business. This is a big, complicated deduction, but if you can qualify for it, you will find it well worth your time and effort to maximize it and there are a fair number of techniques to doing so.
#7 The Home Office Deduction
If there is an area of your home that you use regularly and exclusively for a business, you can deduct it. Since calculating and using the deduction can be complicated, the IRS has made a simplified version available- $5 per square foot of up to 300 square feet and no recapture of the deduction when the home is sold. That $1500 deduction may be worth $500 or more off your taxes. Beats a kick in the teeth.
#8 Rent Out Your House to Your Business
You know what kicks the snot out of the home office deduction? Just renting your house to your business for up to 14 days per year. Keep careful records on this one, but basically you're allowed to rent your house out to anyone you like, including your own business, without paying taxes on that rental income. So if you rent it out to strangers, you could save some taxes there. But if you rent it to your business, the cost becomes a deduction to your business, but never shows up as taxable to anyone. Make sure you're charging a fair rate to your business. Not sure what that is? Hit the local AirBNB and VRBO listings, and don't forget to charge the cleaning fee. For many doctors, this deduction is likely 10-20 times the size of the home office deduction.
#9 Hire Your Children
If you have a non-incorporated business and you hire your minor children as employees, what you pay them is a deduction to the business. Neither the business nor your children have to pay payroll taxes like Social Security and Medicare on that income, and up to $12,200 in income can be earned before any federal income tax is due. Just be sure the work they are doing is reasonable for their age and their wage is reasonable for the work. Keep good records. My favorite child job? Modeling. But there are dozens of others.
Modeling fees?
#10 Contribute to Roth IRAs
Roth IRA contributions won't lower this year's tax bill, but they will lower the tax bill for every other year of your life. All the money earned in a Roth IRA, so long as it is withdrawn in retirement, is never taxed. This obviously goes for Roth 401(k)s, Roth 403(b)s, and Roth 457(b)s too. Didn't think you could still contribute to Roth IRAs due to your high income? Have I got a treat for you.
#11 Tax Loss Harvest
Up to $3,000 in investment losses can be used to offset your earned income each year, savings perhaps $1,000-1,500 in taxes. Unused losses can be carried over year to year. But who wants to lose money on their investment? Nobody, of course, but you might as well let Uncle Sam share the pain. When tax loss harvesting similar (but not “substantially identical”) high-quality, long-term investments, you aren't even really losing money in the long run. You are just taking advantage of some price fluctuations to lower your tax bill.
#12 Tax Gain Harvesting
Many people don't realize this, but below a taxable income of $40,400 ($80,800 married) you don't pay taxes on long term capital gains (or qualified dividends for that matter). Taxable investing accounts can be very tax-efficient for these folks. Even if you expect more taxable income than this in retirement, there may be times during your life when you can raise the basis on your investments by tax gain harvesting (sell and buy the investment back), lowering future tax bills. It can be a great move for minors, students, and early retirees.
#13 Give to Charity
There are a plethora of ways to give money to charity and receive some of that money back in the form of a lower tax bill. If you itemize your deductions, anything you give to charity shows up on your Schedule A as a deduction. But there are plenty of other creative and unique ways to give to charity, such as charitable remainder or charitable lead trusts and donor advised funds. The best way for retirees is often Qualified Charitable Distributions from IRAs. My personal favorite way to give to charity is to donate appreciated mutual fund shares from a taxable account. The charity and I both get out of paying capital gains taxes, and I get a Schedule A deduction for the entire value of the donated shares. Combined with tax-loss harvesting, this can save charitable high earners a ton of money in taxes.
#14 Hire Someone to Care for Your Children
In a two-earner family with kids? I bet you're paying someone to care for your children at least occasionally. That qualifies you for a tax credit (even better than a deduction). The credit is up to 35% of $3,000 (one kid under 12) or $6,000 (two kids under 12) spent on childcare. That includes summer day camps too. Unlike the child tax credit, there's no phaseout on this one. (Although to be fair, with the child tax credit phaseout starting at a MAGI $200,000 [$400,000 married] many physician families will still qualify for it.)
#15 Buy a House with a Mortgage
Like giving to charity, spending money on a mortgage, property taxes, and Private Mortgage Insurance won't leave you with more money afterward, but if you're going to buy the house anyway, you might as well claim the deduction for it on Schedule A. Remember for new mortgages that only the interest on the first $750,000 in debt is deductible. This is still a massive deduction for some of my readers. Remember that property taxes are combined with income taxes and limited to $10,000 total as a Schedule A (itemized) deduction.
#16 Real Estate Depreciation
If you invest directly in equity real estate (or via syndications or private non-REIT funds), the depreciation of the property can eliminate the taxes on the income from the property for many years. You can also avoid the recapture of that depreciation by exchanging a property rather than selling it. If you can qualify for Real Estate Professional Status (work 750 hours in real estate in a year and not work in anything else more than that), you can even use that depreciation to offset your (or your spouse's) earned income.
#17 Send Your Kids to College
There are lots of college-related deductions, but don't expect to come out ahead after sending your kid to college! Earnings in college savings accounts like 529s and Coverdell ESAs are tax-free when used for college. Your state may offer a state tax deduction or credit for contributing too. The American Opportunity Tax Credit (four years of up to $2,500 for tuition or similar expenses) and the Lifetime Learning Credit (unlimited years, up to $2,000 per year for tuition and similar expenses) are also nice, but most doctor families are phased out of these credits. If you can get your AGI under $180,000 and have a kid in college, take a look at them as the tax savings are probably more than using a 529 account.
Learn more here:
#18 Don't Forget Business Expenses
There are a plethora of business expenses. Basically, if you need it to run your business, you can deduct. For self-employed docs, this can include computer, stethoscopes, scrubs, phones and phone plans, CME costs, license/DEA/board exam fees, travel costs, business (not commuting) miles, and lots of other things. If it is legit, deduct. If you're an employee, see if you can't get your employer to reimburse you for it.
#19 Get Another 401(k)
Many doctors don't realize they're eligible for a second 401(k). The rules can be a little complex, but basically you can have a separate 401(k) for every unrelated employer, all with a $58K total potential contribution. The usual set-up is a 401(k) where you're an employee and you put in your “employee” contribution and your employee includes a match, and an individual 401(k) for your moonlighting or side gig, where you can contribute 20% of your profits as an “employer” contribution.
#20 Sell Your House Properly
I mentioned earlier that rental property can be exchanged without the payment of capital gains taxes. That doesn't work for your primary residence, but you do get to exclude $250K ($500K married) in capital gains on your residence from your taxable income. That sort of a huge potential savings makes people start asking “How long do I have to live there in order for it to count?” and “How often can I do this?” The answers are 2 of the last 5 years and every 2 years. So if you have a rental property that has appreciated and you want to sell, move into it for 2 years before you sell. Many people move in and out of their rental properties to maximize this tax break. Note that any depreciation taken while it was a rental property would still have to be recaptured. Note also, that if you only live there for two out of five years before selling that you only get to exclude 40% (2/5) of the gain up to $250K/$500K.
There you go, the top 20 ways high earners can save on taxes. Understand them and profit.
What do you think? Was your favorite/largest tax break listed? Which one was it? Comment below!
Great list, thank you!
I’m inspired now to hire my child as a model for my blog, but first I need to train my son to stop making a horrible scowl whenever he sees someone taking his picture.
Do you think we need a contract, or is that a) overkill and b) unnecessary because he’s a minor and I’m his parent?
I have contracts, W-4s, I-9s, W-2s, W-3s, timecards etc. It needs to be legit employment if you’re going to do this.
Great info, thank you.
Our largest tax break didn’t even make the list! Unreimbursed medical bills in 2020 was our largest tax break. After paying cash for multiple rounds of fertility treatment (not covered by insurance in our state), we will gladly deduct expenses that are over 7.5% of our AGI.
I’m willing to bet a surprising number of your readers are taking advantage of this tax deduction as well. Infertility is far more common that most people recognize, and treatment is rarely covered by insurance.
Good point. Infertility is expensive enough to get over the 7.5% limit even for doctors.
Hi Jim, regarding renting out your home to your business; what type of justification would a small medical practice have for renting out a home for 14 days or less per year? I can see maybe getting away with an annual/quarterly meetings (although not sure why that can’t be held at the office) or maybe a party, but these are events that are just a few hours.
What are the most common things a medical practice can rent their home for to their business for 14 days that the IRS wouldn’t raise an eyebrow with?
I had the same exact question…I tried to research more online, and a CPA website stated that renting to yourself is a redflag for an IRS audit.
So be prepared for the audit. If it’s a legit deduction, no big deal. Don’t skimp out on deductions you deserve just because you might get audited.
I can’t think of very many.
If you have the quarterly meetings at the house, then sure, you could do that. Meetings, parties etc.
How about doing telemedicine at home, would that qualify?
You’re going to rent out a whole house to do a single telemedicine? Seems a little egregious to me. But the rule isn’t that it has to be a smart business move.
Great list. One clarification regarding item #7, the home office deduction. The IRS states:
“Employees are not eligible to claim the home office deduction.”
“The home must be the taxpayer’s principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties.”
The above sited from IRS Tax Tip 2020-98, August 6, 2020
Based on the above, this will limit many from benefiting from this deduction.
Yes, it is a deduction for business owners, not employees.
Hi Jim,
Great post, however, I would also add clarifications in terms of ## 20 Sell Your House Properly. You cant exclude all gains, those must be prorated and adjusted for the depreciation claimed while being rented out and potentially taxable at a 25% tax rate.
here is the source:
https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/property-basis-sale-of-home-etc-5
I think all of the comments by previous readers are to the point as well, I would agree with Scott and Alvin. I think (IMHO) you may want to run a correction post since these are very important notes.
Thank you!
ANVAR M IZBAKIEV, CPA, CFP(R)
Yes, that section refers to your residence, not a rental property where depreciation must be recaptured. I’ve read all of the comments and am not seeing anything that needs to be corrected so far. What am I missing?
Any depreciation you take on your main home (ie. when used as a rental property for a period of time, home office, etc.) must be recaptured when you sell the home, and isn’t eligible for exclusion. Take a look at IRS Pub 523, Worksheet 3 Sections A and C. Not such a terrible deal in the end – it’s basically an interest-free loan from the government, and the rate on depreciation recapture is limited to 25% as the CPA said. So if were in a >25% tax bracket when you took the depreciation in the first place, you get a rate arbitrage. But you do still have to recapture it.
Now I see what you guys are referring to. Yes, I agree with you. I’ll clarify the post.
You forgot my “favorite” one that folks rarely think of: Earn less money!
I all seriousness, there is something to be said for in-sourcing. A stay at home spouse does not have to pay income tax on the imputed income from childcare and any other services they perform such as maintenance work, errands, or cleaning . If you were to outsource it, you’d need to earn more, at tax on it at a higher marginal rate, and then pay someone else to do it and pay them enough to cover their tax burden and possibly their other expenses like insurance. So you pay your income tax and “pay” their income tax.
Of course in general for most people, by working less you legally pay less taxes, but of course you only rarely end up with more after tax (e.g., when you’re at the edge of a subsidy or deduction cliff such as ACA eligibility)
Good points.
I sold my house for $100K profit, and paid zero federal income tax.
The reason is, my house is not within the meaning of the term “property,” as used in the Internal Revenue Code.
Remember, there are two kinds of “property” in so far as government is concerned: Article 4, Section 3 Clause 2 “Property belonging to the United States,” and 5th Amendment “…life, liberty, or property” secured by the Constitution.
So which property can the IRS be referring to? Read:
“It is elementary law that every statute is to be read in the light of the constitution. However broad and general its language, it cannot be interpreted as extending beyond those matters which it was within the constitutional power of the legislature to reach.” McCullough v. Com. of Virginia, 172 U.S. 102 (1898).
Think about it deeply, before you allow yourself to be defrauded.
Watch: https://www.youtube.com/watch?v=jV09lgNWe4g&t=1s
…for the Real Law.
Dr. Lu, Kang
“To keep from harm and injustice…”
You’re cracking me up now. Anybody can sell their residence for a $250K ($500K married) profit without paying any capital gains tax on it. It’s excluded from income.
I wrote that last post to illustrate the different types of “property” recognized by law, and that no private property is subject to a federal income tax, regardless of the gains made in its sale.
The principle applies to ALL types of property, including your labor, your house and your rights.
For #13 it is important to understand that the deduction you get is dependent upon the length of time the asset has been held. If you tax loss harvest from index fund A to index fund B, then 3 months later fund B has gone up 30% and you donate fund B to charity or your DAF, you can only deduct the original amount you bought fund B for, but cannot deduct the 30% gain until you have held fund B for at least one year. I found that out from my accountant after already making the mistake of donating too early.
https://www.fidelitycharitable.org/articles/4-reasons-to-donate-stock-to-charity.html
Absolutely correct. You really need to hold it a year prior to donating to charity to maximize the benefit.
Part of what you wrote on #20 is inaccurate. You can’t just move into a rental property, live there for 2 years, and exclude $250/500k of the gain. If there’s a period of time within the past 5 years from the date of sale where it was used as a rental BEFORE you moved in, then only a percentage of your total gain is eligible for exclusion (related to the percentage of total time you owned the property it was used as a rental). So, if you are going to be moving into a rental that you’ve had for a long time, you really need to live in it for 5 years, not 2, to get the full exclusion. Maybe if the capital gain was so large that even a percentage of it was more than the $250/500k, then you could live for a shorter time and still get the maximum exclusion effectively. Ref: IRS Pub 523 Worksheet 3 Section B.
Thanks for the clarification.
On renting home to my business – how is this not seen as self dealing?
Thanks
JustSayin
Were you under the misunderstanding that the STARK laws apply to the business world in general?
awesome post as always. for #14 my employer offers an FSA that includes dependent care. Does participating in this part of the FSA exclude me from also taking a separate tax credit on childcare?
As a general rule you can’t deduct the same expense twice. So if you’re already paying for it with pre-tax FSA dollars, then no, you won’t be able to take a credit for it. But maybe there is enough expense to maximize both, dunno.
Can you contribute to two 457 plans if you works at two different hospitals?
Wow. Impressive that you’ve found a question I’ve never been asked before. I believe you can. I certainly don’t see any reason you couldn’t.
Great post!
Isn’t it true that 3 years ago, in 2018, congress passed a bill disallowing home office deductions from the federal taxes? Is the information on home office deduction outdated? Please clarify.
No, that isn’t true. The IRS published this about it in 2020:
https://www.irs.gov/newsroom/heres-what-taxpayers-need-to-know-about-the-home-office-deduction
Guys! Doctors! Colleagues!
WAKE UP!!!
Don’t be fooled. It’s so simple that many of you will distrust this, but the LAW is:
The “federal income tax” is the tax on (federal income); It is not the (Federal tax) on income!
Full disclosure: I haven’t paid a dime in federal or state income tax since 2015-TY, and the government returned every dollar I paid + plus + interest, when I learned to file an Honest Tax Return: https://www.youtube.com/watch?v=-wPGoC0-frc&t=1s
Watch “Honest Tax Returns” on youtube, find out the real law, and share it with your patients, according to the Hippocratic Oath: “… to keep from harm and injustice!”
Dr. Lu.
This is a very bad idea. More info here:
https://www.irs.gov/pub/irs-utl/friv_tax.pdf
I’m surprised you signed your real name on that comment, but it doesn’t take an internet sleuth to see that this isn’t your first run in with the law or your medical board:
https://www.unionleader.com/news/health/gun-toting-radiologist-keeps-license-in-new-hampshire-loses-it-in-mass/article_c7578e9b-ad71-5876-8859-59bc83122d76.html
According to Google, this Dr. has had a lot of very bad ideas…
Yes, but he inspired a great post on frivolous tax arguments that’ll run in a few months.
Freedom ain’t free! And the TRUTH is the only way to obtain it.
I’ll defend my right to property and to keep and bear Arms, because that is the law! What about you?!
If you think I’ve put forward a frivolous tax argument, please answer this good faith and material questions:
Is the federal income tax the Federal tax on income; or is it the tax on one’s federal income?
See: https://www.youtube.com/watch?v=o6_sjTNJtdQ&t=1s
Further, please explain how I beat the $5000 frivolous return penalty from the IRS:
https://www.youtube.com/watch?v=sIBIfs4k-EM
And Why did they send me BACK the money I paid +PLUS+ interest?
https://www.youtube.com/watch?v=nQPuXl7tscc&t=4s
Having received federal income while serving in the Army, I became well aware that once I left the Army, I no longer received federal income, and therefore owe no tax on it!
And Yes! I am Dr. Lu, Kang, and I stand for the Truth! Proud of it!
What do you stand for?
Good luck with the IRS. Hope it works out better than some of your past run-ins with authorities.
Thank you for not blocking my last post.
I’m glad that you have an open mind, which was how all of us doctor types were educated and trained.
When the people, including our colleagues learn the Truth for him/herself, then we as a Nation will be a step closer to the Liberties guaranteed to us by the Constitution!
Imagine that! You might be entitled to the fruits of your own labor:
“the property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property.” Butchers’ Union Co. v. Crescent City Co., 111 U.S. 746 (1884)
And nice work on the rest of your website!
Dr. Lu
I hope that isn’t the argument you plan to use when you go to Tax Court for not paying your taxes. You really do have to pay them.
Hope nobody reading this knows about this program: https://constantinecannon.com/practice/whistleblower/whistleblower-types/whistleblower-reward-laws/irs/
or how to fill this form out: https://www.irs.gov/pub/irs-pdf/f211.pdf
With all due respect, I think there’s a lot of material you have not yet seen. To say that I will rely only on one court decision to prevail would be rather underestimating the volumes of legal research in favor of The People v. IRS.
Furthermore, my personal experience in dealing with the IRS is public knowledge, as meticulously documented on YouTube. The IRS knows me, and many thousands like me in the HONEST TAX RETURN movement (http://losthorizons.com). The reason they’ve done nothing against us is because the IRS is pushing a scheme to DEFRAUD the American People, and they know it! They all know that we know it, we can show it on the record and prove it using their own statutes.
They’ve been caught red handed stealing from We the People!
It is a fraud based on misrepresentation of the simple fact that the federal income tax is a tax on federal income (Not the Federal tax on income!). So no federal income? Then, no federal income tax!
I know you’re thinking this is too simple to be true, but do your own research, or take a shortcut and watch:
Honest Tax Returns, Part 2, the meaning of the “federal income tax”
see: https://www.youtube.com/watch?v=-L2kNOfUhn4
As far as the whistleblower and reward program you are referring to, I would gladly volunteer my own information so that you can attempt to claim a reward! You know my name, you can just look up my address and phone number at the Florida medical board’s webpage, or many others!
Yours truly,
Dr. Lu, Kang
p.s.
just to blow your mind further, the “Tax Court” you are referring to is not an Article III judicial court of law; it is an Article I legislative forum for person who are liable for the federal income tax — persons who receive “remuneration for services” (aka federal income). Want proof? see — Section 7441 of Title 26: “There is hereby established, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court.”
… Really? A court established under the authority of the legislative branch!? What ever happened to separation of powers!? Hint – it’s not a real court!
P.S.
Wake up America! Let’s start with the doctors smart enough to figure this out!
Good luck in your crusade.
How do you feel driving on the roads the rest of us are paying for while being protected by the police and military the rest of us pay for? You feel good about that? Because the rest of us view you as a free loader who is quite literally stealing from the rest of us by not paying your share.
Your arguments are clearly frivolous. Heck, your most recent one in the PS is actually listed in the IRS list of frivolous arguments. It’s totally bogus. Besides, as the IRS says:
I’ll be very surprised if they don’t eventually make an example of you and throw you in prison. I wouldn’t blame them. Your argument is seriously dumb. Why in the world would Congress pass a tax that only taxed “federal income”? They wouldn’t. And no court is going to uphold that viewpoint.
Hey Doc,
Firstly, allow me to give thanks to your questions and openness, as I can clearly see that you are trying to work this out in your mind as a rational, scientific thinker. That’s what this country needs, above all. As a colleague, I shall endeavor to give you my best good-faith understanding of the Truth, as it is written by Congress (in Title 26 USC and others).
Let me address your points regarding driving on the roads, military…etc:
The Roads are paid for by those who use it for Transportation. So when you buy gas, about 50 cents to the gallon goes to the Transportation Department as an indirect tax on the gainful entitlement of “driving,” which is inherently different from the RIGHT of “traveling.” See Stephenson v. Binford 287 U.S. 251 (1932): “It is well established law that the highways of the state are public property; that their primary and preferred use is for private purposes, and that their use for purposes of gain is special and extraordinary, which, generally at least, the legislature may prohibit or condition as it sees fit.”
This is the common law concept of pay for use: A public good is paid for by those who use it (see Adam Smith, the Wealth of Nations). And this is law as defined by the term: “HIGHWAY. An easement acquired by the public in the use of a road or way for thoroughfare. … A free and public roadway, or street; one which every person has the right to use. … Its prime essentials are the right of common enjoyment on the one hand and the duty of public maintenance on the other…” See Black’s Law, 4th Edition. See also Title 23 U.S. Code § 101, (11): “The term ‘highway’ includes (A) a road, street, and parkway…the cost of which is assumed by a State transportation department…”
Now, in reply to your accusation that I am a “freeloader,” I assure you that I’ve earned at least the right to be entitled to the fruits of my own labor. If anything, my experience in almost 15 years of service in the Army, has shown me that the horrors war is an evil that your federal income helps perpetuate, and I for one withdraw consent.
My withdrawal of consent is not stealing from you! From my perspective, you are an oppressive tyrant forcing me to pay for an evil I do not wish to be a part of. According to the law, you can not do that, just read the Declaration of Independence: “Governments are instituted among men, deriving their just powers from the CONSENT of the governed.” Ever heard? No means no!
If you have seen the evils of mass violence brought on by the “your” tax dollars, surely good Doctor, you would also withdraw consent.
You asked: Why in the world would Congress pass a tax that only taxed “federal income”?
Because that’s the will of We the People, and this is fact, documented in the Congressional records. Go see for yourself:
“The decision of the Supreme Court in [Pollock v. Farmers’ Loan & Trust Co.] deprived the National Government of a power which, by reason of previous decisions of the court, it was generally supposed that government had [in Article 4, Section 3]. … I therefore recommend … an amendment to the Constitution conferring the power to levy an income tax upon the National Government without apportionment among the States in proportion to population.” – President William H. Taft. Congressional Record – Senate, June 16, 1909, page 3344.
Do you read this? The 16th Amendment: confers “the power to levy an income tax upon the National Government without apportionment.” It clarifies the Pollock v. Farmers’ Loan & Trust decision in that while apportionment is a requirement for direct taxes on the people, no such requirement is needed when the government taxes its own employees!
Now problem we are generally facing is that people, even good meaning, smart people like yourself are misled by the IRS and their armies of attorneys in their wrongful interpretation of the tax law. This is in logic, I’m sure you know is called the agency dilemma, in which a conflict of interest inherent in the relationship of an agent with his principal leads to incentives of the agent to mislead the principal.
I mean, just ask yourself: why would you depend on the tax collector to provide an honest and unbiased answer to our tax questions?! duh…
So, I suggest you dismiss your agents, and exercise your own due diligence and actually study the law you are attempting to follow. Because “it is our duty to construe legislation as it is written, not as it might be read by a layman, or as it might be understood by someone who has not even read it.” Meese v. Keene, 481 U.S. 465 (1987).
Cheers,
Dr. Lu, Kang
I’m clearly not going to convince you. I’m not going to bother trying anymore. In fact, I doubt you would be convinced if you were put in jail for 5 years.
Best of luck.
Your comments here, attempting to convince others to evade their taxes, are in fact criminal, whether you believe it or not. So I can’t continue to let you leave them lest I be drug into your case via subpoenas.
Regarding your very last point, I think the information is incorrect, but please feel free to correct me here, I am not a CPA.
“Note also, that if you only live there for two out of five years before selling that you only get to exclude 40% (2/5) of the gain up to $250K/$500K.”
I believe that is inaccurate. If you live 2 out of the last 5 years, then you should qualify for a the entire exclusion of gain from capital gains (100% of the $250k/$500k).
If you lived less than 2 years of the past 5 years, but moved for a qualifying reason, like relocating from one city / state to another for a new job, then you can still exclude the capital gains partially:
(Number of months lived/24) x $250k or $500k depending on single filing or married filing jointly.
https://www.irs.gov/publications/p523
Thanks for the clarification. I think the difference is the qualifying reason.
I am a bit confused. I gave $11,000 in charity for 2020 and I don’t think I have find another $10k to deduct. If I am filing jointly, do I just deduct the $24k without itemizing?
Actually I take that back. I paid $49k in 2020 for mortgage interest. Does that count?
If you paid $49K in mortgage interest I hope you make lots and lots of money and really love that house. At 3%, that would suggest a mortgage of something like $1.5 million, no?
At any rate, if you paid $49K in mortgage and another $10K in state/property taxes then your entire $11K charitable contribution is deductible. But if you and your spouse were renting in Texas, you would probably be better off with the standard deduction.
Hi,
I work in a state psych hospital and pay into the state pension fund. I do not pay Social Security taxes as a result, and I’m in a state where I basically won’t get any social security payments (or maybe a small fraction) despite paying into social security for a number of years prior to working for the state.
My question is this: I’m thinking about doing some 1099 work mainly to be able to deduct the business expenses as my regular job does not cover licensing or membership fees or lots of other stuff. Would I still pay SS tax as part of self-employment tax on my self-employment income?
Technically, I think you have to pro-rate the amount of those expenses used for each job, but I don’t think most do that. If you’re a sole proprietor, you would only pay SS tax once. If an S Corp, the employer part gets paid twice.
I am employed as a physician at an academic center. In addition, I am heavily involved in KOL advisory boards to pharma companies and insurance companies and receive multiple 1099-NECs at the end of the year. I am using a small part of my home for that (home office). With that background, I have a few questions:
1. Is it within the legal parameters to show this as a self-employed business of Physician Consultancy?
2. Home office has to be separate from what I use for charting, etc from my main job?
Thanks for your awesome work, Jim!
Best,
DrumBeat
1. Sure, why not? What else would it be?
2. The rules are “regular and exclusive use”. If the main job is also self-employment, that’s probably okay. If a W-2, probably not. It’s hard for the IRS to prove you don’t use space regularly and exclusively though. Maybe that’s why the deduction, at least the way most take it, is pretty small (<$1500) .