Is it smart to pay no taxes?

Donald Trump brings fresh attention to the possibility that affluent individuals and businesses can pay no federal income taxes. Last night, at Hofstra University, Trump said “That makes me smart”. Is he right? Is it smart to pay no income taxes? 

The first point we should reach is that it is possible for an affluent person to pay no taxes. Many people I work with don’t seem to really believe that anyone can, if they choose to do so and take the extreme measures required, arrange their financial affairs to legally pay no income taxes.

The second point is that it may not be smart to pay no taxes even if it is possible. Paying no income taxes takes such extreme financial arrangements that the other side effects would likely be difficult for most people to overcome. Mortgage and consumer credit, for example, are largely dependent on your reported taxable income. Some may ask “Why should I pay more taxes than Donald Trump?” but I think that there are good reasons to do so.

A better financial goal, I suggest, is to lower your income tax burden, but not to completely eliminate it. If you have a gross income of $300,000, for example, and are now paying 23% of your gross income in taxes and can lower that to 16%, this tax planning would put you among the tax-efficient individuals within your income group.

I offer help with planning and projecting income tax outcomes and would be pleased to discuss a range of tax-saving strategies that may work best in your situation.

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