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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsTo raise your ire: How Retirees Pay Zero Taxes
http://www.forbes.com/sites/baldwin/2013/06/05/how-retirees-pay-zero-taxes/#Dont let this out to anyone on the Senate Finance Committee, but rich old people who set up their portfolios a certain way get away with murder on their tax returns.
No, the portfolio does not have to be tucked away in the Cayman Islands. It can be invested through a U.S. brokerage account in mainstream funds like Vanguard Total Stock Market, familiar blue chips like Microsoft and very liquid energy partnerships like Kinder Morgan Energy Partners.
To illustrate, lets invent a retired couple who live outside Boston. They own a $2 million home, have $7 million stashed away at their broker and haul in $200,000 a year in dividends, interest, Social Security and distributions from publicly traded partnerships. They have $30,000 in deductions, including $20,000 for property tax and $5,000 for a donation.
Type this example into Intuits TurboTax program and the federal income tax bill that comes out is $17.
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clarice
(5,504 posts)Bigmack
(8,020 posts)... you don't know where those people have been and what they've been eating.
clarice
(5,504 posts)1-Old-Man
(2,667 posts)They must be because every time we try to round them up them just keep on growing.
clarice
(5,504 posts)MineralMan
(146,189 posts)below the poverty line. Your example is rare. My example is very common.
daleanime
(17,796 posts)about/for each couple.
Bluenorthwest
(45,319 posts)2/3s do not. The example in the OP is clearly rare as it is a 1%er scenario. 1% means 1%.
LiberalFighter
(50,477 posts)Cause the pension portion of their income pretty much stays the same during retirement. As the years go by the poverty level goes up. So what they could afford early in retirement becomes less affordable.
Auggie
(31,059 posts)wandy
(3,539 posts)The Op's title... " How Retirees Pay Zero Taxes" had this cranky old retiree heading for the garage to get out the blowtorch.
1-Old-Man
(2,667 posts)Or live in a $2 million dollar house?
Yavin4
(35,354 posts)Not even close to the top 1%.
hobbit709
(41,694 posts)Your example is another case of what the 1%ers get get, not the average American.
Yavin4
(35,354 posts)they're getting a tax break because they're investing in municipal tax-free bonds which is what local governments use to pay for infrastructure projects. Also, they're writing off their state and local taxes from their federal tax bill which is fair. State and local taxes can be extremely high for some states, and it's used to make those states more liveable.
Most of the benefit of the tax break on Muni bonds goes to the bond issuer. The interest rates on those bonds are much lower because people buy them specifically to lower their tax bill.
Another issue here is with the non-taxing of dividend income. Years ago, a lot of people complained about the double taxation of corporate income. It was taxed once when the corporation earned it and then again when it was paid out in the form of dividends. The solution was rather stupid - we lowered and in some cases eliminated the tax on dividend income. At the same time, corporations found massive loopholes to avoid paying corporate income tax. I think it would have made much more sense to eliminate the corporate income tax and to treat dividend income just like any other form of income. That way, dividend income would be taxed progressively based on the income of the recipient, so if a working class person has GM stock in their retirement plan, they don't lose their share of that income to a corporate tax but if a wealthy person has the same shares and gets dividend income, they pay a significant percentage of it in taxes.
One other major tax "dodge" they didn't mention is Roth IRA/Roth 401K accounts. You can accumulate large quantities of money in these accounts and never have to pay taxes on the earnings in those accounts again. That seems like a short-sighted way for current congresses to reward people by giving away future federal tax revenue. They had blocked contributions to Roth IRAs (but not Roth 401Ks) for high earners, but they effectively removed that block in 2010. Now, if you are above the cap for contributing to a Roth, you can instead contribute it to a regular IRA and then immediately convert it to a Roth. Those high earners are now burdened with making two calls to the broker instead of one to get money into a Roth.
Matariki
(18,775 posts)Are senior citizens going to be the new "welfare queens" now?
Or like Reagan railing against waitresses and the unemployed not paying taxes on their 'massive hauls of income' are we going to start sqeezing mores taxes out of social security checks?