How Much Money Do You Have to Make NOT to File Taxes?
The last political season has a lot of people wondering how much money you have to make NOT to file taxes.
The reason for the higher visibility related to corporate taxes is the fact that the impending “fiscal cliff” is forcing politicians to take a closer look at where the government can generate additional revenue.
The fastest approach is to raise taxes across the board, but the problem with that is that middle-income families are already over-burdened with the taxes they currently pay, and increasing it further would not only dramatically slow spending, it could even drive many families into bankruptcy.
On the other hand, an obvious solution comes when you take a look at actual dollar amounts of taxes paid by people and corporations across all income levels. Many research groups started an extensive analysis in 2011, and those studies revealed that corporate entities that make the most profit actually pay the least taxes.
Amazingly, unlike middle-income families that try to play by the rules and pay their fair share to the system, many corporations have found so many “tax-breaks” from the local and federal government, that they pay absolutely no income taxes at all.
How Much Money Do You Have to Make Not to File Taxes?
In 2011, if you’re single, under 65 years old and you make less than $9,500, you don’t have to pay taxes. If you’re married and jointly earn under $19,000, you don’t need to file a return either. (1)
However, as surprising as it may be, corporations at the other end of the income spectrum – those that have profits in the millions – don’t have to pay any taxes either. For some reason it’s only everyone in the middle that’s left holding the tax bag.
How can this be?
The highest cited study on this matter was an analysis conducted by the Citizens for Tax Justice as well as the Institute on Taxation and Economic Policy.
The study conducted by these two institutions in 2011 looked at 280 of the profitable Fortune 500 companies from 2008 through 2010, and found that there were 30 companies that earned millions in profits, and owed less than zero in taxes. This list was updated to include data from 2011, and the numbers hadn’t changed.
Income Versus Taxes Paid
The breakdown is astonishing when you start breaking down the numbers.
From 2008 through 2011, Wells Fargo earned $69.16 billion and paid only 3.8% in taxes. Verizon earned $19.783 billion and paid -3.8%. General Electric earned $19.616 billion and paid -18.9%. (2)
What were some of the reasons these companies were able to evade paying taxes like other Americans? Across the board, the reasons centered around tax loopholes.
Boeing enjoyed a “research and experimentation” tax credit, and deferred taxes for “inventory
& long-term contract methods of income recognition”. If only families could do that, huh?
Many of the companies avoided a bulk of taxes through tax deferrals related to accelerated depreciation. It appears depreciation is the common theme throughout most of these tax-evading corporations.
General Electric on the other hand, must pay its tax preparers well. The company’s financial arm, GE Capital, posts large “losses” that the corporation is able to use to avoid paying much in taxes for other operations that may be earning huge profits.
In the end, it appears that the real question isn’t how much money you have to make not to file taxes, it’s how you can start a corporation, and then position it to take advantage of “accelerated depreciation” to avoid having to pay taxes on all of the profit you make today.
The reaction to those numbers has been nothing short of furious. This problem isn’t U.S. specific. In October of 2012, the UK’s Daily Mail called for a boycott of Starbucks for its avoidance of paying UK taxes.
Other companies on the list of UK tax-avoiding naughty-list included Google, Facebook, Apple and Vodafone – a UK mobile network. One Guardian blogger wrote that while the effort of different regions to offer the most tax-breaks to draw in companies and bring in jobs is legal, the practice is unfair to other companies that remain where they are and try to play by the rules.
The unspoken agreement is that they are providing employment and their employees are paying tax, and that the little matter of corporate taxation can be largely overlooked. Understandable perhaps in these strained economic times, but unfair on companies that do operate in one tax jurisdiction rather than move to whichever country offers the most favorable tax regime. (3)
Most editorials tend to agree on one thing – the tax code in both countries is part of the problem. At least in the U.S. simplifying the tax code and removing those tax loopholes once and for all, would significantly infuse the government with much needed revenue. It would also avoid the need to increase taxes further on middle-income families who are already paying the bulk of actual tax dollars.
Unfortunately, the odds are also good that if corporations are made to pay their fair share, they will pass on the pain by cutting jobs in an effort to keep their “projected profits” on par. They call this “cost-cutting measures”, but unfortunately most cuts come at the bottom of the company – the workers – and not at the top.
How much do you have to make not to file taxes? Right now, you either have to be nearly homeless, or you have to own a corporation that makes over a billion in profits. In those two scenarios, you may be able to pay no taxes.
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