“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes or public duty to pay more than the law demands.”
Judge Learned Hand (1935)
First, we must compliment the Judge for his totally appropriate name as someone pontificating on taxes. We couldn’t come up with a better name if we tried. Having said that, let’s begin with one somewhat controversial truth. If you are obeying the rules of tax law, it is patriotic to pay less, not more, taxes…
What are you talking about Geoffrey??? Isn’t the IRS a big bad revenue machine that takes as much as it can, only to find that the rich outsmart it at every turn? Uh, no… Let me shake that coconut out of the tree right now. The IRS does not care one iota if you pay $1 in taxes or $1m. What the IRS cares about is that you follow the rules of the road – rules that were put in place to do two things: generate revenue to operate this country and (very importantly) to promote socially responsible activity.
There are two kind of deductions, those for the masses, who believe tax deductions are a privilege and hope they are not continually chipped at – and for those in the know, who know that they are a tradeoff – of one type of socially responsible behavior for a tax deduction. We call the latter group “Five Percenters.”
The masses get a mortgage deduction, a property tax deduction, one for a 401k, a write-off for dependents. What do these all have in common? These are socially responsible deductions, and many, many people have them.
It is socially responsible to own your own home – it promotes stability and commitment to be a productive member of society. It is socially responsible to save for retirement – because if you don’t, you become a burden later in life. It is socially responsible to provide for dependents, again because if you don’t (heaven forbid) then society will need to.
However, each of the deductions is also limited. You can’t contribute unlimited amounts of tax deferred money to your 401k and you can’t own a mega home, with a mega mortgage and expect to deduct all that interest. There are some tax deductions that are not capped, and on this site, we examine how to arrange your life to capture these in a completely legal, patriotic and socially responsible way.
What else is socially responsible:
- Owning rental property that provides housing to those who can’t (or don’t want to) afford to buy their own home – especially rent subsidized housing for low income tenants;
- Providing jobs by owning/running a small business;
- Funding industry through the stock market and other forms of private and public capital;
- Investing in energy to help the US become energy independent.
The difference is that while your mortgage deduction, property taxes, 401k and dependent deductions are capped (among many others), deductions related to the four points above generally are not. Some can even be used to offset ordinary income from your job (if you’re working for someone else) if they generate more expenses than revenue!
There are of course many, many, more deductions than what we will refer to on this site as the Big Four, but know that if you understand the rules of the road there are four major focus categories:
- rental property deductions,
- small business deductions,
- investment deductions, and
- energy related deductions
Within these areas, you will capture most of the deductions available to those “in the know.” We will give you hundreds of examples on this site on how to maximize these and design your future so that you can quickly migrate from deductions for the masses to deductions for the classes.
The bottom line is that if all we did was tell you about the social security wage base, dependent care deduction, mortgage interest deduction, etc., we should be named ‘Deductions.BORING,’ not ‘Deductions.TAX!’
We are here to help you get front footed with your taxes, and please Uncle Sam in the process!
14 Important Deductions.TAX Keyword Search Terms:
five-percenter
rental property
small business
investments
charitable
low income
energy
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business deduction
trust
estate
S corporation
limited liability company (or LLC)
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Of Special Note:
Deductions.TAX uses the case study method, bringing life to examples (and dare we say – making them fun?!?) that address the tax question or idea being discussed. Look for these on complicated issues and decisions.