Unfortunately, not paying an income tax if you are a U.S. citizen can get you thrown behind bars. Regardless of your political beliefs, how you vote, or your understanding of the U.S. Constitution, the government doesn't care.
It wants your money, and it will use any means necessary to get it.
Plus, millions of welfare recipients, illegal aliens, Wall Street bonuses, and large banks are depending on us… If you can’t tell, I hate paying taxes – I find nothing more unpatriotic.
Absolute refusal to pay an income tax aside, here are my best 3 ideas on how to avoid paying more than you have to legally.
If you're living in California or New York and you hate paying taxes, the solution to your problem is to change your zip code. As a California native myself, leaving California was one of the best decisions I've ever made in my life. Across the board, from the people in my community to the economic environment, I couldn't be happier with my family’s move to the great state of Texas.
Not only did I completely eliminate my state income tax, but I saw my regulatory fees collapse. Auto registration is a $50 flat fee no matter what you drive, utility taxes are super low, gas is much cheaper -- gas tax in California is 59 cents a gallon, Texas is 20 cents -- and the Texas state sales tax is about 15% lower than the Golden State.
For all the fuss about Texas real estate taxes, I was paying 1.25% in California and here in Texas, I am paying 1.83%. However, my home is on 1 acre and has a full guest house, 5-car garage, and is about 1/4th of what the same home would sell for in Los Angeles County.
Florida, Tennessee, Nevada, Alaska, New Hampshire, and Washington also have no income tax.
For those of you who run a business from home, Puerto Rico has a law where you can pay no federal income taxes for 5 years if you relocate there with your business. I heard there is a Costco there… so it can’t be that bad.
2. Mr. Roth and Permanent Life
If you don't care about having access to your money, you can use a Roth IRA to invest. You use after-tax income to fund it, but then you are done! There are no more taxes on the growth or income. The downside to the Roth IRA is that you are limited as to when you can access it, how much you can deposit into it each year, and if you break any of the rules, you will be subject to a penalty.
A better alternative is an insurance wrapper called “permanent life.” It’s similar to the Roth, where you use after-tax dollars to fund it, but unlike the Roth IRA, you can access the money whenever you want. The growth is tax-deferred, much like a traditional IRA, however, these can easily be set up so that you or your heirs will never again pay taxes on any of the money inside this vehicle.
It's a way to keep an extra 20-30% of your gains for the rest of your life. The best part is that as a bonus, these accounts are IRS-proof, even from civil litigation.
3. Maximize Your Deductions
It seems simple, but in order to do this, you really do need a business. Even if it’s just being a landlord, having a business opens up the floodgate to reducing your taxable income through deductions.
Legal and normal business write-offs can cover everything from hotel stays to your cell phone bill, assuming that it is indeed used for business. What about all those educational books or newsletter subscriptions you buy? If your business is running the family fund, then speak with your CPA about how to legally use real-life everyday expenses as a deduction.
Summary: Always keep it legal, because the U.S. Treasury department is like the mafia.
Any minor infraction can come with penalties, late fees, and a type of harassment that you don't ever want to experience. The IRS can freeze or seize your funds before you even know that you are being investigated, so as best you can, legally reduce your taxes within the current system.
Morally, I think the income tax is stealing. It's crystal clear if you ask me: the government is taking something by use of force, that if not for the threat of jail, I would never give them a portion of my income. The United States went 137 years without an income tax. In fact, the Supreme Court, at one time, ruled it illegal.
About 1/3rd of the government is funded by income taxes, and the rest comes from other sources. So don't ever let anyone convince you that we need an income tax. From 1776 to 1913 we did just fine without one. And even today, there is still plenty of money coming in from voluntary taxes, like a sales tax -- where we choose to buy goods and services -- that could fund a much smaller government.
As you build your wealth, remember that you want to plug holes, and reducing your taxes is something that you can immediately take action on. Every dollar not flushed down the toilet to the IRS is money you can use to compound your wealth and enjoy a higher quality of life.