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More than 35,000 of American households who make over $200,000 annually, paid no income tax to the federal government in 2009, according to a new study by the IRS.For 2009, of the 3,975,288 tax returns with expanded
income of $200,000 or more, 35,061 (0.882
per cent) had no U.S. income tax liability; and 19,551
(0.492 per cent) had no worldwide income tax liability.
According to the IRS study, the most common way for these wealthy individuals to avoid paying taxes was by a combination of legal deductions. The most common individual deductions that occurred for these taxpayers were deductions for charitable donations and medical expenses.
The study does point out that, “It is possible for certain itemized deductions and certain exclusions from income to cause nontaxability.” However it is also more likely for a wealthy household to be able to fully take advantage of that, since they generally have more flexibility with their spending.
Time may be running out for these wealthy non-taxpayers, though, with the Obama administration pushing what is being called the Buffet Rule, as Catherine New from the Huffington post explains. The Buffet Rule’s purpose is to strike a balance between the favourable activities deductions cause and collecting taxes from the rich. It would do this by limiting the amount by which a taxpayer can reduce their liability.
The wealthy aren’t the only ones who can use deductions to lower their tax bill. As Mandi Woodruff pointed out, “The site, called taxKilla, walks users through the simplest way to dodge taxes, such as filing Schedule C deductions for a business entity.”