The question for those of us who aren’t superrich is how to lower not our current, but our remaining lifetime taxes. Here are some ideas.

Share story


We have until April 18 to file our taxes this year. I know no one who likes paying taxes, even though Uncle Sam badly needs every penny. If everyone paid their fair tax share, it would be one thing. But they don’t.

The biggest offenders are the superrich. They have a simple, legal means to pay zero taxes. Invest in assets, like land, that pay out zero taxable income and borrow against this wealth to fund spending. No taxable income? No taxes. This is true regardless of whether the top income-tax rate is today’s 39 percent or 33 percent, as per the House Republican tax plan.

Furthermore, when they want to repay loans or rebalance assets, the superrich combine the sale of assets that have lost value with the sale of appreciated assets such that the losses exactly offset the gains. This means no net taxable income and no tax. Warren Buffett says his tax rate is lower than his secretary’s. But if he wished, he could pay literally nothing.

The superrich also have the perfect end game. When they die, they leave their appreciated assets to heirs with what’s called a “step-up in basis.” This means the accrued capital gains never get taxed.

I recently discussed tax reform with a superrich 30-something. “None of the people in my circle pay taxes,” he explained. “We just borrow and never realize net gains. The only answer is taxing our spending, not our income.”

Fortunately, the business part of the House tax plan represents a powerful, but subtle way of taxing the spending done by the wealthy. As a result, the overall plan appears to maintain progressivity. If passed as written, it should stimulate major new investment, raising wages by about 7 percent.

For now, though, we have to deal with the current tax system. And the question for those of us who aren’t superrich is how to lower not our current, but our remaining lifetime taxes. Here are some ideas.

• If your current tax bracket is higher than your future tax bracket, consider contributing more to a tax-deferred IRA or similar plan. The contribution limit is $5,500, and $6,500 if you’re 50 or over. The deadline for 2016 contributions is April 18.

• If your tax bracket is temporarily low and you are at least 59, consider taking penalty-free tax-deferred retirement-account withdrawals, paying taxes at your current low tax rate, and then contributing the net withdrawal proceeds to a Roth IRA. Contributions to a Roth accumulate tax-free, and their future withdrawals are also tax-free. Furthermore, Roth withdrawals trigger neither Social Security benefit taxation, Medicare high-income taxation, nor push you into paying the high-income Medicare Part B premium. This represents a Roth conversion.

• Between full retirement age and 70 and taking your Social Security benefits? Consider suspending your Social Security benefits and restarting them at 70. This will likely raise your lifetime benefits. It should also lower your lifetime taxes if your post age-70 tax bracket is lower than your current tax bracket.

• If eligible, file for the refundable Earned Income Tax Credit. One in five of those eligible fail to file.

• If you’ve taken a lump-sum retirement account withdrawal, consider income averaging to lower your taxes.

• If married, consider filing separately if one spouse has a lot of medical or work expenses. If single, consider filing as head of household if you are paying for a child living more than half the year at home or a parent living in a facility.

• Switched jobs? The costs of moving family and your pets are deductible.

• Take credits for child college support or re-educating yourself.

• Include in charitable contributions child-care costs incurred while volunteering.

• If self-employed, write off business travel.

• Each December, sell stocks that lost value and, if desired, repurchase them at least 31 days later.

• Living in “sin”? Consider getting married. It will likely save taxes and raise your joint Social Security benefits.

• Consider moving to a state with lower income and property taxes, especially if the House tax plan is adopted. It eliminates the deductibility of these taxes under the federal income tax.