NOW LIVE: Eyewitness News

How You Can Be Rich, But Owe No Income Tax

By Jeanne Sahadi

PHILADELPHIA (CNN) — If it turns out Donald Trump owed nothing in federal income taxes for years thanks to a $916 million business loss he claimed in the mid-1990s, he would join an exclusive club few can even believe exists.

Its members are the highly well off who end up with zero federal income tax liability in a given tax year.

This year, despite making more than $1 million, roughly 666 households likely won’t owe any federal income tax, according to estimates from the Tax Policy Center. And another 3,700 or so households making between $500,000 and $1 million also will not have to send a check to Uncle Sam.

Special Ed Teacher Invites Students To Join Her Bridal Party

Granted, that’s barely a sliver of the estimated 77 million tax filers — or 44% of all households — who likely will end up owing no federal income taxes. More than three-quarters of them make $40,000 or less.

But it’s always a curiosity how someone living off of seven figures — including not just their regular income but income from things like government benefits and employer-paid fringe benefits — doesn’t end up with a positive federal income tax liability.

The tax code, after all, is designed to be progressive. Those who make more typically owe a higher percentage of their income in taxes than those who make less.

But the tax code is also chock-full of tax breaks that those with money are more able to use. Those with a great deal of money can afford to invest much of their cash in tax-exempt bonds, for instance.

Or they may make direct investments abroad. If they end up owing tax to a foreign government, they’re allowed to take a tax credit for that.

They also have more money to give to charity, which can yield big deductions.

And when they take big bets and lose — either in their investments or their businesses — they can take a capital loss or a net operating loss. If the loss is large enough, it can greatly reduce if not eliminate their tax bill altogether in a given year.

The-CNN-Wire ™ & © 2016 Cable News Network, Inc., a Time Warner Company. All rights reserved.

Comments

One Comment

Comments are closed.

More From CBS Philly

Getaway Do’s And Don’ts For Hurricane Season
Five Small Midwestern Towns To Visit Now

Watch & Listen LIVE