How To Avoid Paying Taxes Legally — and the 11 Craziest Ways People Have Done It
Benjamin Franklin famously said, "nothing is certain but death and taxes." Skip filing your taxes, and the IRS will come calling. And when it does, you'll likely face penalties and interest -- and even lose your chance to receive a tax refund.
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But there are ways to reduce some -- or all -- of your tax bill legally. If you want to save some money, learn more about how to avoid paying taxes without breaking any laws.
How To Avoid Paying Taxes Legally
The IRS offers Americans a variety of tax credits and deductions that can legally reduce how much you'll owe. All Americans should know what deductions and credits they're eligible for -- not knowing is like leaving money on the table. Keep reading to find out some ways to save on some or all -- depending on how many credits and deductions you qualify for -- of your tax bill.
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Qualify for Tax Credits
Many people don't realize that a tax credit is the equivalent of free money. Tax deductions reduce the amount of taxable income you can claim, and tax credits reduce the tax you owe and, in many cases, result in a nice refund.
The IRS offers a large number of tax credits that encompass everything from buying energy-efficient products for your home to health insurance premium payments to being in a low- to moderate-income household. The key to benefiting from these credits is examining all of the purchases you've made throughout the year to see if you are owed money.
There are 17 tax credits for individuals you can take advantage of in five categories:
Family tax credits
Homeownership and real estate credits
Income and savings credits
Check out the IRS credits and deductions page for a breakdown of all the credits you may be eligible for.
Read: Reduce Your Social Security Tax Bill Using These Tips
Take Itemized Deductions
Most people take the standard deduction available to them when filing taxes to avoid providing proof of all of the purchases they've made throughout the year. Besides, itemized deductions often don't add up to more than the standard deduction.
But if you've made substantial payments for mortgage interest, property taxes, medical expenses, local and state taxes or have made major charitable contributions, it could be worth it to take this step. These tax deductions are subtracted from your adjusted gross income, which reduces your taxable income. So if you want to know how to avoid property tax or how to get out of paying school taxes, you might be out of luck. But you might also be able to deduct them from your income and use them to avoid other taxes.
The IRS has an interactive tax assistant that can walk you through the process to determine the general standard deduction you may be eligible for in just five minutes. Use the figure calculated for your tax situation to decide which deduction is greater -- the standard deduction or an itemized list of all your purchases and expenses.
Check out the lower half of the IRS credits and deductions page for more information about all the tax deductions you may be eligible for.
Enroll in College
One way to take advantage of tax deductions or credits is to enroll in college. The government currently offers credits and deductions -- you usually have to take one or the other -- to go back to school online or in your community.
Students can take advantage of one of two education tax credits: The first is the American Opportunity Tax Credit, which offers up to $2,500 off the cost of tuition, fees and course materials paid during the taxable year per eligible student. Another credit to consider is the Lifetime Learning Credit, which offers up to $2,000 off the cost of tuition, fees and course materials. You can claim only one credit per year.
Also, keep in mind that financial aid in the form of grants and work-study offer tax-free cash that doesn't count as taxable income. Scholarships also help pay for school and are nontaxable as long as the money is used for school-related purposes like tuition, fees, books, supplies and equipment.
There's no doubt that it's difficult to legally avoid paying taxes, but by taking advantage of credits and deductions, you could improve your chances of doing so.
Is It Possible To Pay Nothing in Taxes?
A tax deduction works by lowering your taxable income, so you pay less in taxes. If you want to avoid paying taxes, you'll need to make your tax deductions equal to or greater than your income. For example, using the case where the IRS interactive tax assistant calculated a standard tax deduction of $24,800 if you and your spouse earned $24,000 that tax year, you will pay nothing in taxes. Remember this refers to federal taxes -- you may be subject to local and state taxes.
If the deductions you qualify for aren't enough to completely eliminate your tax bill, you'll need to plan on making less money the following year. Don't think that moving outside of the U.S. will help you avoid paying taxes -- according to the IRS, "if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live."
It's always best to consult with a tax professional who can help you reduce or eliminate your tax bill without getting in trouble for tax fraud.
Good Question: What Is the Standard Deduction for People Over 65 in 2023?
Is Avoiding Taxes Legal?
Yes and no. Tax avoidance, where you attempt to minimize your taxes, is legal -- as long as the deductions you use are allowed. Tax evasion, where you deliberately fail to pay a portion or all of your taxes, is illegal.
File your annual tax returns even if you can't afford it or don't think you owe taxes, to avoid trouble. Tax evasion can result in fines and expensive interest on the amount you owe. The IRS could even freeze your bank accounts and garnish your wages until you file and pay your taxes.
Instead of skipping taxes, you should look to minimize what you owe. There are many tax deductions and tax credits you can take advantage of to lower your tax bill. Depending on your eligibility for deductions and credits, you may be lucky enough to eliminate your tax bill completely, but don't bank on it.
How To Get Out of Paying Taxes: Bizarre Case Studies
One way or another, most Americans are expected to pay taxes. Tax avoidance might be legal, but tax evasion constitutes a serious crime. Do it and you'll likely end up paying a tax penalty.
So, how to not pay taxes legally? It turns out that you can avoid paying taxes if you understand some of the ins and outs of the tax code. And in many cases, some Americans have turned not paying taxes into something of an art form, securing deductions for things that would normally seem entirely off-limits. So, here are some pretty novel ideas for how not to pay taxes.
Drunken Driver Turns DUI Into Tax Deduction
Some people have all the luck -- or incredible persistence. Justin Rohrs managed to slide his truck off an embankment in 2005, only to be slapped with a DUI for driving intoxicated. Despite the circumstance under which his car was damaged, he decided to file an insurance claim for his truck for $33,629. After his insurer denied his claim, he attempted to claim his vehicle loss as a tax deduction.
At first, the IRS wasn't having any of it. Rohrs took the matter to the U.S. Tax Court, claiming that he deserved a casualty loss deduction for his damaged truck. Shockingly, the judge agreed and allowed him to take the deduction.
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Cats Can Be Worth Big Money
Jan Van Dusen, a cat lover with more than 70 felines in her home, spent much of her time caring for strays she found in the wild. In some instances, after caring for the cats, she'd release them back into the wild. But more often than not, she fostered her furry friends and tried to find good homes for them.
The cost of caring for the cats began to mount for Van Dusen, so when she filed her 2004 tax return, she tried to write off $12,068 for cat-rescue items like food, vet bills, paper towels and more. After the IRS informed her that those expenses counted as personal ones and she couldn't deduct them, she sued the IRS. Following a long battle, Van Dusen proved her cat care was charity, resulting in the IRS finally granting deductions for most of her claims.
Exotic Dancer's Breast Implants Pay for Themselves
Cynthia Hess, also known by her stage name Tonda Marie, was an exotic dancer who wanted to improve her business. In other words, she wanted bigger breasts. After getting a breast enlargement procedure done, her business grew -- along with the jump in her bra size to a 56FF.
Hess, now known as Chesty Love, decided to deduct her implants as a business expense. The IRS turned down her request, stating that business deductions work only in circumstances that are ordinary and necessary.
Hess sued the IRS, arguing that her new breasts should be considered a business uniform. She went on to say that she planned to have them removed immediately after retiring from exotic dancing. After much convincing, the tax court agreed that she would have added breasts that large only for business purposes -- they were 10 pounds each -- and decided to grant the deduction.
Even Drug Dealers Get Tax Deductions
Drug dealer Jeffrey Edmondson could teach classes on how to avoid paying taxes legally. He got himself in trouble with the law after being busted and charged with drug trafficking. Eager to get even more out of the dealer, the IRS audited him for $17,000 in back taxes after he failed to declare his income from drug dealing.
Edmondson decided the government wouldn't have the last laugh. Leading up to his trial, he filed a tax return that listed his taxable net income along with a list of business deductions. He left his occupation blank, of course. After looking at his return, the IRS turned down his deductions. But Edmondson was not ready to give up.
He took the matter to Tax Court, where he claimed he'd established a home business and wanted to claim home-office deductions -- including drugs. Surprisingly, the judge agreed to allow him to deduct his expenses, which included a $50 scale, more than 19,000 miles in business mileage on his car and 100 pounds of marijuana.
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Bribes Can Be a Business Write-Off
Shady businessman William D. Zack ran a fake invoicing scheme that landed him in hot water with the IRS. The U.S. government sued him for unpaid taxes on unreported income totaling $311,601 for the tax years 1985 and 1986. But Zack argued that his total unreported income for those years should be reduced by $90,286 -- money that went toward bribes over those years, stating that he made the bribes in order to obtain work for his business entities. Surprisingly, the court ruled in his favor, and the total unreported income he had to pay back taxes on was reduced.
Professional Gambler Makes a Winning Bet Against the IRS
In 2001, professional gambler Robert Mayo wagered over $131,000 and won $120,000. On his tax return, he listed his gambling losses, as well as his expenses for travel and research, as tax deductions. Mayo argued that the $10,000 he was in the hole should be considered operating losses rather than wagering losses because gambling was his profession. The tax court ruled in his favor, and his case set the precedent for a new law that allowed full-time professional gamblers to claim gambling losses and expenses as business expenses, according to Casino Players Report.
An NBA Star Deducts His Fines
In 2010, former NBA star Lamar Odom sued the IRS after the agency said he owed $87,000 in taxes and interest. Odom had taken tax deductions for $12,000 in sports fines and $178,000 for fitness expenses, both of which the IRS said he could not take deductions for. Odom argued that both the fines and personal fitness fees were necessary for this line of work, Forbes reported.
"These (NBA) fines are commonly assessed on professional athletes and are work-related," Odom told the court. "Therefore the fines incurred are ordinary and necessary employee business expense."
In 2012, the case was settled, and the IRS agreed to take only about $9,000 in owed taxes and interest -- about 10% of what it was originally seeking. These types of deductions won't fly in the 2023 tax year, unfortunately. Only self-employed individuals can deduct job-related expenses under the Tax Cuts and Jobs Act.
Learn: The Average IRS Tax Refund Amount by State
Scuba Diving Trips to the Florida Keys Deemed a Business Expense
Tax preparer Jody Padar, CPA, told CNN Money that a firefighter who worked in a cold climate was able to write off scuba diving training trips to the Florida Keys as a business expense on his taxes. He was able to claim the deduction because the scuba diving certification was required for his job with the fire department's dive team.
As with Odom's case, this type of deduction would no longer apply, as unreimbursed business expenses can't be deducted for employees under the new tax law.
A World Traveler Deducts a $50,000 Trip
If you dream about traveling around the world -- and writing off the cost -- it might be possible. Tax preparer Jerry Lewin told CNN Money about a client of his who took a multiyear trip around the world with stops in Italy, France and Greece -- and the client wanted to write off the entire $50,000 cost of the trip. In the end, the client was able to write it off because he published a book about his travels -- and even though it was published by a very small publisher and only sold 20 copies, it counted as a business expense.
A Business Deduction for Wining and Dining Informants
A police officer who worked with Padar wined and dined -- and sometimes just paid outright -- for information from valuable informants. Whatever money wasn't reimbursed by the police department was able to be deducted as a business expense, CNN Money reported.
Once again, these types of deductions wouldn't fly under the Tax Cuts and Jobs Act.
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An iPhone as a Medical Expense
After suffering severe brain injuries stemming from a car accident, one taxpayer was actually prescribed an iPhone by her doctor. The phone allowed her to be more independent -- it reminded her of things she needed to do and answered questions for her via Siri -- so it was able to qualify as a medical expense, CNN Money reported.
As of 2023, the IRS allows taxpayers who itemize their deductions to deduct their total qualified unreimbursed medical expenses that exceed 7.5% of their adjusted gross income.
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Cynthia Bowman and Gabrielle Olya contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: How To Avoid Paying Taxes Legally — and the 11 Craziest Ways People Have Done It