How to Avoid Paying Income Taxes Legally

Taxes don't have to be a problem.

Taxes don't have to be a problem.

The old adage that the only two sure things in life are death and taxes is half right. As of January 2014, you can't cheat death (at least not permanently), but there are ways to get out of paying taxes without breaking the law. The secret to doing it is not earning any taxable income. Because taxable income is different from other income, you can exploit this principle to reduce or eliminate your taxes.

Earn Very Little

In 2014, a single person without children gets to earn $10,150 completely tax free. This comes from combining the $6,200 standard deduction with the $3,950 personal exemption. With low earnings, you can qualify for the Earned Income Tax Credit, which pays taxes back to you, and with children, you get additional exemptions and may also qualify for the Child Tax Credit. Having a small business could give you access to additional write-offs as well.

Join the Military

Serving in the military gives you access to a couple of ways to reduce or eliminate your taxes. Military pay frequently gets split into halves -- your basic pay is taxable, but the food and housing allowances that you get frequently aren't taxed. This helps reduce the amount of pay that is eligible to be taxed. Furthermore, if you serve in a combat zone, all of your basic pay is free of federal tax as well.

Tax-Free Retirement

You can also set yourself up for a retirement in which you don't pay income taxes. One way to do this is to fund Roth IRA accounts. With a Roth, you put already-taxed money in, so when you withdraw money in retirement, it comes out completely tax free. Given that a single $5,500 contribution can grow to $72,972 over 30 years if invested at 9 percent per year compounded, you could rack up a healthy nest egg in your Roth, given enough time. Another way to have tax-free income in retirement is to purchase investments that provide tax-free income, such as municipal bonds.

Adjust Withholding

If your goal is to simply not have to write a check to the IRS as opposed to not paying any income taxes, you can have your employer adjust the amount of money he takes out of your paycheck by providing a new W-4 form. By increasing your withholding, you ensure that the IRS gets the money it needs to pay your taxes out of your paychecks. You will still want to file a tax return, though, because you might end up overpaying the IRS and end up being eligible for a refund.

 

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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