What's the most money you've made without owing Federal Income Tax? 100,000 or more?

The way the tax system is today, an ordinary family with a substantial amount of income can get away with owing no federal income tax, or better yet actually get paid by the government. Below is just an example I came up with.

100,000 income, married filing jointly, 4 kids, live in high tax state, owns home with mortgage commensurate to income. Tax year 2005. (Some calculations are based on 2004 numbers since not all 2005 numbers are available, ie exemption amounts, etc.)(many numbers rounded to nearest hundred)

100,000 income
- 14,000 401k contribution
- 4,000 nonworking spousal ira contribution
- 20,000 Mortgage interest deduction (30 year fixed 5.125%, $400,000 first year;s intrest
- 7,000 property tax deduction
- 1,500 state income tax decuction
- 18,600 exemption for family of six
- 4,000 contribution to employers health insurance plan
- 1,500 contribution to flexible spending account
- 7,400 charitable contributions to church, scouts, etc.
_________

22,000 taxable income

=2,600 in tax (14000 at 10% tax rate = 1400) + (8000 at 15% tax rate = 1200) =2600.
-4,000 in child tax credits
____________________________

=1,400 tax payment to taxpayer from the additional child tax credit
End result = negative tax rate.

It could even be lower if you used more exemptions or deductions, like having a member of the family in college, have a working spouse and have child care dedcutions, etc. Is there anyone out there with real life examples similar to this? Post your experiences here.

Edit for spelling and clarity: "noworking spousal contribution" to "nonworking spousal ira contribution". Thanks mrebbert.

I have the feeling that with so much deductions, the hypothetical family either hitted AMT or about to.

- 7,400 charitable contributions to church, scouts, etc.


that seems like audit material to me

with all the expenses in your example it leaves them with about $40,000 a year for food (got to feed the family of 6), 2 car payments, utilties, phone bills, insurance, gas, cothing, vacation, ect... add all that up and they wont have must left over

packersrule said: - 7,400 charitable contributions to church, scouts, etc.


that seems like audit material to me

Maybe since the taxable is 22k, but for 100k if you donated 10% thats 10k to a church (Tithes are typically 10%). 7400 is well under that, I think they would be fine.

OPs figures aren't that far off. With 2 kids now, my effective tax rate is about 10% only. With 2 more kids, I wouldn't pay much at all. However, it would be hard to support that many kids, just a trip to McDonalds would be 30 bucks!

300+ views so far, 0 people reporting $0 tax bill. where's that 44%, slim?

Wow - I am impressed, I am in a similiar situation, but only have 2 kids. So no $0 for me...

i just don't get why if you have kids, you should get an absolutely huge tax relief. it's not like the income levels being thrown around here are "barely scraping by", these are decent incomes.

7 trillion in debt, and we need to move ~100k in income to zero tax level??!?!?!

many say adjust the AMT upwards. i say adjust it DOWNWARDS! (acutally, i say eliminate the AMT, as well as eliminate all credits and deductions entirely).

Perhaps one of u folks could start a thread about 'child deductions fair/unfair' - and leave this thread for what folks accomplish with the existing law?

I'd read this thread, doubt I'd get to the other one.

calvinandhobbes said: i just don't get why if you have kids, you should get an absolutely huge tax relief. it's not like the income levels being thrown around here are "barely scraping by", these are decent incomes.

7 trillion in debt, and we need to move ~100k in income to zero tax level??!?!?!

many say adjust the AMT upwards. i say adjust it DOWNWARDS! (acutally, i say eliminate the AMT, as well as eliminate all credits and deductions entirely).

Ohh no, here I go. I make pretty good money for my age (76k) and I see friends who make much less (35k), but yet they have more money to throw around because they have no tax burder and there other stuff (state, SS etc...) is less, while collecting other stuff like WIC, welfare, etc... I propse a different idea, one that has been put out before but shot down. How about a federal sales tax and get rid of income tax, that would get rid of thousands of IRS jobs not to mention all the tax prepare places but think of the benefit. No more tax evation, you buy it, you pay for it. You save for retirement anyway you choose you don't have to worry about working it best for the current tax laws. States have been doing it for years (FL, TN, TX). Thats my .02 Flame away.

longwood8 said: the example above did not pay zero income tax but instead just delayed the tax and still paid state and local taxes. To wit:

- 14,000 401k contribution Will be taxed along with all earnings at retirement
- 4,000 nonworking spousal ira contribution Dito
- 7,000 property tax deduction Taxes paid
- 1,500 state income tax decuction Taxes Paid

Thats 8.5% of income paid in taxes imediately and more due at retirement.

Add in the gas tax, sales tax, and corporate taxes paid indirectly each time he buys a product and even this best case scenerio requires the payment of a good amount of taxes.
That was my thinking too, 401(k) contributions just delay taxes, not eliminate them. Additionally, donating to charity is in a way similar to "paying taxes," although at least you get to choose who gets the money. Either way your spending money to enrich others and not yourself. I can't really see how making a large charitable contribution as a logical way of getting out of taxes. Of course it's great, and you should do it if you have the means and believe in the cause, but as for taxes, you're only getting back 25 cents or so for every dollar you donate.

You can probably avoid tax on 401k if you are in the lowest tax bracket when you are old and take very little out.

fboyfboy said: Don't forget the child tax credit has a phase out range starting $110K for a couple. Every $40K above $110K eliminates 1 child. And you cannot claim exemption in AMT either.

slimcustomer said: Actually, they don't hit the Amt this year and I'm not even sure they would next year. As long as the child tax credit can still be applied against the Amt (which it can for this year) this hypothectical family should be ok.

Ditto... $140K and i'm so screwed

good topic, slim. posting in vanguard MM thread must have got you going, eh?

I'm not there yet (75K income + 22K gains = $1.5K in taxes), but should be close next year since I've picked up a couple of rental properties...these may be the best tax 'reducers'...at least for the first few years of ownership. your out of pocket cost can be very low (or nothing) on these, only expense is 'sweat equity'.

I said
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Actually, they don't hit the Amt this year and I'm not even sure they would next year. As long as the child tax credit can still be applied against the Amt (which it can for this year) this hypothectical family should be ok.


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Checked and the child tax credit is allowed against the AMT for 2006 under current tax law.

Actually, the child tax credit is AMT neutral. Consider it as some tax free money given to you. If you are paying AMT, you will get less money back because of higher AMT rate.

slimcustomer said: I said
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Actually, they don't hit the Amt this year and I'm not even sure they would next year. As long as the child tax credit can still be applied against the Amt (which it can for this year) this hypothectical family should be ok.


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Checked and the child tax credit is allowed against the AMT for 2006 under current tax law.

what OP forgot to say is the wife can get certified as a child care worker and he can pay her via FSA deductions

hotandhumid said: This hypothetical family sounds like half the people in my subdivision. 3 or 4 kids, 1 income family, living pretty well. I always wondered how they do it. Now I see, they're not paying their share and I'm paying their taxes for them.
Don't worry too much about this. The average person is lucky if they can understand their taxes well enough to have H&R Block do it for them, let alone taking advantage of all the various (legal) loopholes and tax dodges that OP is suggesting.

teplitsa said: what OP forgot to say is the wife can get certified as a child care worker and he can pay her via FSA deductions
While I'm all for using flexible spending accounts to save on taxes (which very few people do, BTW), I don't think this strategy will work. In your example (assuming it's legit), the husband gets a tax deduction on his salary for the FSA contribution, and redeems it tax free to pay the wife. But the wife should report that income as salary, on which the couple has to pay taxes. Comes out to the same thing in terms of total income, and maybe extra FICA too since the husband's salary might have been high enough to have hit the cap, while the wife's clearly won't be.

is that 4K in health ins premiums to employer plan? if so, isn't that just considered a medical expense subject to 7.5% AGI floor on itemized deductions. not sure you can take this.

EricGo said: Well, I have to read up on Sandy's hints about unearned income, but all the other advice just doesn't seem to fit my lifestyle ..

I pay $2K in property tax, and not $7k like the lucky OP
I pay $0K in mortgage interest, and not $20k like the amazingly lucky OP
I barely give away $1k in charity.
I don't want more than two children. Saving for FOUR Uni educations would be annoying.

My health insurance is paid with pre-tax dollars -- deduction already taken. And is a piddly $2k, unlike the OP who has found a way to spend 4K.

Any other ideas how to spend more, and get back 25 cents on the dollar ?

Not sure if there was any advice given in the OP, just an example of how a relatively high income hypothetical family wouldn't owe federal income tax under our current tax system. Other hypothetical scenarios will work as well. You could easily have an example with fewer children and greater 401k contributions for a dual income family. Not all the deductions in the example in the OP involve spending either, although you are right to point out that certain expense related tax favored lifestyle choices that you have chosen not to make won't benefit you from a federal income tax viewpoint.