David, do yourself a big favor. Print your post, put it in a safe, and look at it in 20 years.

David, This is excellent tax advice. How did you learn about these tax deductions/credits?

All it takes it time to study tax code / tax pamphlets / tax books / etc. etc, or they can pay me $75 a hr and I can tell them what they need to do…

What David has layed out is a very simple plan but the key part of it is to be in business for yourself because then you can control you lifestyle to the max…

@David et al. Reminds me of a book “Twelve by Twelve” where ‘Dr. Jackie Benton’ lives off the grid & by only earning ~$11K as to avoid paying the war taxes.

Haha, I know of many people that whine and complain about companies and government. I often remind them they can vote with their money by not shopping there, or working less (after accumulating a substantial amt of wealth :D), or taking the max allowable deductions…or all of the above.

@Scott Uh, i think u may have missed David’s point. idk.

Thanks for your responses, everybody. I’ll respond to a few here:

rjack ? I mostly learned about the credits and deductions that I use by reading the IRS’s “Publication 17” — the agency’s how-to guide for individual income tax filers. If I needed to delve further to make sure I knew how to qualify and if there was any fine print, I looked to other IRS documents. Oddly for a government agency, their website is pretty good: easy to search once you get the hang of it, and with all of the pertinent information available for download. You do have to wade through some technical verbiage, though, which can take a little patience. Most of the credits and deductions I mention in this article are pretty simple to deal with. The most complicated stuff I have to worry about is business expenses. Amortization is a bitch.

Scott ? It’s a common misconception that people can get under the income tax line by donating a sufficient amount to charity. I’ve run the numbers, and it’s not that simple. The first problem is that the deduction for charitable donations is an itemized deduction, so you have to donate enough to get your itemized deductions up to the same amount as your standard deduction before you even start to reduce your taxes. The second problem is that your deduction is typically limited to 50% of your adjusted gross income (even less for some types of charity). The third problem is that you take your itemized deductions after you calculate your adjusted gross income, so you can’t reduce your AGI that way and therefore can’t use this method to qualify for tax credits that require a low AGI (like the retirement savings tax credit I rely on). Every once in a while the government loosens some of these restrictions — for instance, in the wake of Hurricane Katrina they allowed people to make tax-deductible hurricane-related donations up to 100% of their AGI. These opportunities are difficult to predict, however, and only help with problem #2.

Built in to your responses also is the assumption that people are most productive and contribute most to society when they are engaged in money-earning activity. I don’t deny that there’s something to this — if you’re getting paid to do something, it’s presumably valuable at least to whoever is paying you. But I think there are lots of things that people do that they don’t get paid for that are every bit as valuable as things people do for money, and I’d be surprised if you couldn’t come up with a dozen examples yourself the next time you find yourself between shifts.

Also, I could see the persuasiveness of the lopping-off-your-nose-to-spite-your-face argument if I had actually become impoverished or my quality of life went down or I were no longer able to take care of myself or save up for emergencies. But none of that is true. My quality of life has gone up, I’m living a ridiculously comfortable first-world life that’s gotten subjectively better and objectively more well-rounded; I’m self-reliant and as confident in my future as one can be given the perilous state of the world and the slings and arrows of fortune.

mike crosby ? Very enigmatic, so I’m not sure how to respond. But you inspired me to go back and look at something I’d written 20 years ago. I’d just come back from a post-high-school Eurail-and-backpack jaunt with a friend, where I found a rind-covered camembert exotic enough to merit mention, and I was delighted by the commentary on the collapse of the Soviet Union I was reading in the Guardian and International Herald Tribune, comparing these to the writing in the New Republic, which was my idea of the pinacle of sophisticated political thinking at the time (I think it really was a much better magazine then, but still). I wonder where I’ll be 20 years from now.

Self-employed pay more social security tax because employers kick in part of the cost for their employees.

@Scott
Consider this:

“…most people have more than one principle to which they appeal as the basis for moral choice. The most commonly used principles, we find, are three in number:
• The ends-based principle of utilitarianism, which calls on us to do the greatest good for the greatest number. This principle, developed by the English philosopher John Stuart Mill and described by philosophers as a consequentialist or teleological concept, holds that ethics gets done when whatever I do produces consequences that turn out for the best. It focuses on arriving at good outcomes and results rather than on the motives or rules that guided us in our choices.
• The rule-based principle, by contrast, takes no account of consequences. It is commonly associated with the concept of the categorical imperative as articulated by the German philosopher Immanuel Kant. He formulated his principle this way: “I ought never to act except in such a way that I can also will that my maxim should become a universal law.” In Kant’s view, ethics gets done when whatever I do is something I’d like to see everyone else in the world do in similar circumstances. It asks us, in other words, to imagine that our action will establish a universal standard that will forever rule human decision making—so that everyone from now on will do exactly what we’ve just done in such situations. Depending not on outcomes, it is instead a deontological principle, from the Greek word deon, meaning “duty” or “obligation.”
• The care-based principle looks at a different determinant for our actions: what would we want others to do to us? It is rooted in the Golden Rule, a compassionate standard of great antiquity that lies at the core of all of the world’s great religions, including (though not limited to) the biblical religions of Christianity and Judaism. This principle of reciprocity or reversibility calls on us to imagine that we are in another’s shoes, about to be impacted by the very actions we’re contemplating. If we cannot confidently say that the action we’re taking toward another would be acceptable if taken toward us, then under this standard we’re about to do something unethical.
While we’ve given these principles three brief descriptive names—ends-based, rule-based, and care-based—there is nothing new about them. Each is drawn directly from the traditions of moral philosophy. Unlike the paradigms, each tends to operate in mutually exclusive ways: one sometimes counters the others, compelling the decision maker to set aside all but the one that creates the most satisfying understanding of what’s right.”

Kidder, Rushworth M. (2009-03-17). Moral Courage

David, this is impressive. I am not an American, thus I feel less involved in the wars that you fight. But I can imagine how you must feel as an American, to be forced to pay taxes for something you totally, completely, a 100%, do not agree on.

I think you chose an admirable path. It is a path that not everybody can, or is willing, to follow. (Imagine if for example your sick parents, or your three young children, are dependent on your income). But it is admirable.

I use the deduction of charitable donations as well to reduce my taxes and to be more able to spend my money on things I value. But as many more have said here, you only get a partial deduction, so I keep paying some taxes for other things.

I would be interested in a discussion of whether making money in the “underground economy” (more commonly called under the table) is right or not.

David Gross is NOT making money under the table but on his blog he says he thinks it is okay to do.

I did not know about the personal limits on charitible deductions. I imagine a knowledgeable tax professional / lawyer could arrange a non-profit entity that gets around those for the individual. I really don’t know though.

The classes of moral arguments are interesting. I generally find use of morality to justify a behavior to be difficult, simply because the distinction between right and wrong is not so clear.

For instance, those lower income tax credits David is taking advantage of – are they really intended for someone of his means and ability? I doubt it. Sure the letter of the law lets him qualify, but he doesn’t sound exactly like the needy type of person who needs help.

I’d take them if I qualified though!

David is thriving in his chosen lifestyle. That’s great. It doesn’t mean his reasoning shouldn’t be questioned. We learn by asking questions. Further discourse also reveals he’s a pretty rational guy and a good writer on top of it.

Long Term Capital Gain Tax is only 15%. Certain long term Dividends are also 0% if in the ten percent income tax bracket.
I will have to side with making $200k to invest in the above, live or rent cheaply/ in a small house, not waste money on extra wants or paying sales tax, prepare as much as you can for all security and emergency situations, and then create, create, create, innovate, and design a new world!

A few more responses:

Petra => True, this path isn’t for everybody. If I had large debts or if other people were dependent on my income (or, as they say in the divorce papers, “accustomed to a certain lifestyle”), I might not have been able to go about it the same way. On the other hand, the examples you give (“sick parents, or… three young children”) are not necessarily disqualifying, since extra dependents are also extra dependents for tax purposes (that is, extra deductions), and there are even more credits and deductions you might be able to qualify for in such cases (for instance, setting up tax-advantaged savings accounts for your three kids’ higher education expenses).

George TOO => While you can earn interest on some government bonds without paying federal income tax on that interest, you have to be pretty well off (more than I am) or have very low expenses (less than I have) to be able to live off the interest without additional (potentially taxable) income. The riskiest and highest-rate municipal bonds these days pay what, 5%? And you’d probably want to reinvest at least some of that to keep your returns rising with inflation. But it’s worth doing the math. Of course, some government bonds are every bit as objectionable as taxes to the conscientious resister — just another way of giving the government money to do nefarious things. And the risk shouldn’t be discounted. The federal government often responds to its budget problems by devolving its mandates and responsibilities onto the states, and the states in turn shovel them on to local governments, so if America does start going belly-up, it may happen one bond-issuing district at a time rather than all at once, leaving those bondholders who were hoping for the best yields wishing they’d invested in something sounder than governments.

Kevin M => The chart in my article only covered the federal income tax, not other taxes (like the self-employment tax). It is much harder to get below the tax line for that tax unless you live substantially on investment income rather than earned income, which I’m not currently in a position to do (or unless you’re Amish, as they managed to get grandfathered out of the social security program). So in a typical year I will owe a few thousand dollars in self-employment tax. In this case, I resist by simply not writing the check. This is not quite as clean cut as my income tax avoiding technique, and means I get worried letters from the IRS every once in a while.

You simply don’t pay S/E tax? I imagine at some point you’ll get more than a nasty letter from the IRS. Especially once they figure out you’re a repeat offender. The good ones say “INTENT TO LEVY” across the top. Good luck to you when the IRS reaches in your bank accounts.

Mr. Gross,

very interesting post. I was hoping to read more on your blog, but every page seems to come up scrambled. Did you move your blog somewhere else? A few entries are available on goodreads.com, but it looks like not all of them.

Thank you.

[…] reading David Gross’s blog post on Early Retirement Extreme I had to respond.  David Gross blogs about tax resistance, frugality, ethics, and other such […]

Using SEP and IRA accounts to reduce tax in the present is a good strategy, but you are going to have to pay tax on those in the future through required distributions. And you can’t get out of those just by not writing a check because the monies will be withheld before you even get your hands on them.

An interesting idea. There’s plenty of things to hate about the way the government spends my hard earned money. The problem is there’s plenty of admirable things too. Taxes pay for road improvements, scientific study, safety regulations, product regulations, law enforcement, welfare, education, business initiatives, historic preservation, etc. By refusing to pay them I’m sticking it to way more people than just “the Man”.

Perhaps in the future we’ll have the technology dialed in so people can allot tax money to their pet preferences and a way to track the initial and long term consequences of that spending. But that would probably kill many ideological biases people cling to. What if a better world is not based on spending money on wars and social programs but improving the life of cats?