I Pay No Income Tax and Do It Legally!

It’s just six weeks away from the filing deadline for 2019 federal taxes and if you are like most Americans, you are not a big fan of having to pay them. Typically, it’s a conversation we have (at least with ourselves) as we tend to mumble about how much we pay and how it is spent—and sometimes wasted—by our government. It really doesn’t matter which side of the political spectrum you are on, all of us would love to pay no income tax and take home more of our paychecks, wouldn’t we?

It may be possible for you to pay no income tax and do it legally. Do you take advantage of all the deductions and tax credits you're entitled to?

If you take nothing else away from today’s post please take this: Check and file a new W-4 tax form where you work that will guarantee that you have the correct amount withheld from your paycheck each week and will not cause you to get a giant refund with no interest! You can have whatever amount you want withheld, even zero if you want and that is perfectly legal if you believe that you will not owe any taxes for the year!

Pay No Income Tax

Filing your tax return has gotten easier with the help of online information. You can file a return yourself and guess what? I did it and I didn’t have to pay any federal income taxes at all, and I do it perfectly legally!

I am not alone. About 47% of all Americans paid no income tax in 2019 (for 2018) and they aren’t a group of rich folks who skirt the law. In fact, I even got an EITC (Earned Income Tax Credit) refund and wound up with “free” money given to me from the IRS!

The truth is that if you are a young wage earner under age 25, or a senior citizen, you have a good chance of not paying any income taxes. In fact, more than 80% of those age 75 or older are non-payers!

2019 Filing Season Statistics

Last year (2018 tax returns), almost 156,000,000 returns were filed. About 85% of them were filed online, but only about 35% were filed by the taxpayers themselves. The others, over 80 million returns, were filed by a tax professional who charged a fee for doing them and maybe, just maybe, that wasn’t really a necessity.


Last year, there were 111,811,000 refunds issued totaling over $320 billion dollars! The average refund check was about $3,000 and much of that was money that was held onto all year long by Uncle Sam and then returned to you with absolutely no interest. You gave our government a 100% free loan, you generous soul. And why? They certainly won’t do that for you, will they?

While getting a refund does sound like a gift, it is money you could have gotten in your paycheck all year long if you had known what I know and weren’t afraid to apply the knowledge right now. That knowledge can get you more pay every week.

Who Actually Has to Pay Income Tax?

Tax laws in 2020 for income earned in 2019 are pretty generous. There are seven tax rates in 2020. They are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. But, here’s the great part. Since January 1, 2019, the standard deductions have risen dramatically. That means that for an individual taxpayer, the first $12,400 of income is now taxed at $0 dollars! If you are filing a joint return, that number is doubled to $24,800 of deductions. If you had an adjusted gross income of that or less, you would owe no federal income tax at all.

Now you may be saying to yourself, “Gary, my AGI (adjusted gross income) is way over that $24,800 number, so I will owe taxes no matter what.” And yes, you may be right about that. The truth and good news is this: there are still a number of legal ways to lower your taxable income and avoid the withholding and tax problem of overpaying your taxes each pay period and then getting your own huge tax dollars back with no interest!

An awful lot of people, especially those who are retired, can qualify for a $0 tax bill, and that’s even when they are getting a Social Security check every month adding up to thousands and thousands of dollars year! I am one of those people.

Additional Ways to be Exempted from Federal Taxes

For 2020, the additional standard deduction amount for the aged (seniors) or the disabled or blind is an additional $1,300 per person. The additional standard deduction amount increases to $1,650 for any unmarried taxpayers. So for my family, $27,400 ($24,800 plus $2,600) can be deducted from my AGI.

Both of my wife and I get Social Security (mine for retirement and her for disability) and because there are rules that exclude a big portion of them from taxes, our taxable amount before applying the standard deduction is almost nothing. Even with interest income, dividends, IRA withdrawals from my traditional IRA and the income derived from my business, after applying the standard deduction, we owe nothing in taxes!

IRA Deductions

One way you can lower your tax bill is simple. Americans can reduce their income taxes and beef up their retirement account, too!

Taxpayers can deduct contributions to a Traditional IRA. For the 2019 and 2020 tax years, the traditional IRA contribution limit is $6,000 per person, with an additional $1,000 catch-up contribution allowed for individuals who are 50 years old or older. That’s a reduction of taxable income of $7,000. Roth IRAs do not qualify for a tax deduction.

The great news for seniors is that since the establishment of the new SECURE Act as of January 1, 2020, we can still take advantage of contributing to an IRA because the laws now allow up until age 72 and not the previous age 70½ which applied under the old rules for contributions and withdrawals.

While anybody with earned income can contribute to a Traditional IRA, the ability to take this deduction is income-restricted for taxpayers who are also covered by a retirement plan at work, or whose spouses are. Check out the limits for the 2019 tax year and the 2020 tax year if you’re curious about qualifying.

Additional Ways to Reduce or Eliminate Your Tax Bill

Above-the-line Deductions

If you need to itemize deductions, there are quite a few tax deductions that you can use regardless of whether you itemize or take the standard deduction in addition to contributing to your Traditional IRA. These are known as adjustments to income and are more commonly referred to as above-the-line tax deductions. Here are the above-the-line deductions you may be able to use:

  • Teacher/educator expenses for classroom supplies, up to $250
  • Business expenses for government officials who work on a fee basis, performing artists, and members of the military reserve forces (reservists) who traveled more than 100 miles to perform reserve services
  • Health savings account (HSA) contributions you made with post-tax money
  • Moving expenses for active-duty members of the U.S. Armed Forces
  • The “employer portion” of the self-employment tax
  • Retirement account contributions for self-employed individuals and small business owners
  • The cost of health insurance premiums for self-employed workers, including dental and long-term care insurance
  • Early withdrawal penalties of savings accounts, like a certificate of deposit (CD)
  • Alimony payments for agreements that took effect before 2019 (the deduction for alimony payments was ended in 2018)
  • Contributions to a traditional IRA, as long as it’s money you already paid income tax on
  • Student loan interest – the deduction is for up to $2,500 of interest you paid on student loans
  • Tuition and fees for you, your spouse, or a dependent
  • Contributions by chaplains to 403(b) retirement plans
  • Attorney fees and court costs you paid to recover a judgment or settlement for a claim of unlawful discrimination against you
  • Attorney fees and court costs you paid in connection with an award (known as a whistleblower award) you got from the IRS for helping it detect tax law violations

Below-the-line Deductions

After you take any above-the-line deductions and find your AGI, you can claim below-the-line deductions. First, you can take the standard deduction, which is technically a below-the-line deduction because you take it after finding your AGI, but people rarely talk about the standard deduction by saying it’s above or below the line. Everyone can claim the standard deduction. It’s a set amount based primarily on your filing status.

When people talk about below-the-line deductions, they’re usually talking about itemized deductions. They are the alternative to taking the standard deduction.

For this to be worthwhile, itemized deductions must be greater than the standard deduction to which you are entitled. For the vast majority of taxpayers, itemizing will not be worth it. With that in mind, here are itemized tax deductions you may be able to take advantage of when you prepare your tax return:

  • Medical and dental expenses deductions (you can deduct those expenses which exceed 10% of your AGI)
  • State and local taxes (deductions for state and local sales, income, and property taxes remain in place and are limited to a combined total of $10,000, or $5,000 for married taxpayers filing separately)
  • Home mortgage interest
  • Charitable donations
  • Casualty and theft losses
  • Job expenses and miscellaneous deductions (These are now subject to a 2% floor. Miscellaneous deductions including unreimbursed employee expenses and tax preparation expenses, which exceed 2% of your AGI have been eliminated). Check the IRS site for complete details.

The Tax Credits

Some tax credits are refundable, meaning that even if you pay no income tax, you can get some or all of it back as a refund.

Earned Income Tax Credit: The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for working people with low to moderate incomes who meet certain eligibility requirements. Because it’s a refundable credit, those who qualify and claim EITC pay less federal tax, pay no tax, or may even get a tax refund. To get the credit, people must have earned income and file a federal tax return—even if they don’t owe any tax or aren’t otherwise required to file.

For 2020, the maximum EITC amount available is $6,660 for married taxpayers filing jointly who have three or more qualifying children (it’s $538 for married taxpayers with no children). This is the one that my wife and I qualified for. Phase outs apply.

Child Tax Credit: The Child Tax Credit has been expanded to $2,000 per qualifying child and is refundable up to $1,400, subject to phase outs; there is a temporary $500 nonrefundable credit for other qualifying dependents. AGI phase outs are not indexed for inflation and remain at $400,000 for married taxpayers filing jointly and more than $200,000 for all other taxpayers.

Adoption Credit: For 2020, the Adoption Credit for an adoption of a child with special needs is $14,300, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $14,300. The available adoption credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) in excess of $214,520; it’s completely phased out at $254,520 or more.

Lifetime Learning Credit: For the 2020 tax year, the AGI amount for joint filers to determine the reduction in the Lifetime Learning Credit is $118,000; the AGI amount for single filers is $59,000.

Medical Savings Accounts (MSA): For 2020, a high-deductible health plan (HDHP) is one that, for participants who have self-only coverage in an MSA, has an annual deductible that is not less than $2,350 but not more than $3,550; for self-only coverage, the maximum out-of-pocket expense amount is $4,750. For 2020, HDHP means, for participants with family coverage, an annual deductible that is not less than $4,750 but not more than $7,100; for family coverage, the maximum out-of-pocket expense limit is $8,650. The unpopular shared individual responsibility payment has been eliminated for the tax year 2020.

Foreign Earned Income Tax Exclusion: For tax year 2020, the foreign earned income exclusion is $107,600.

Qualified Business Income: As part of the Tax Cuts and Jobs Act of 2017, sole proprietors and owners of pass-through businesses are eligible for a deduction of up to 20% for qualified business income. The deduction is subject to threshold and phased-in amounts.

Credit for Other Dependents: This credit is available to taxpayers with dependents for whom they cannot claim the Child Tax Credit. These include dependent children who are age 17 or older at the end of 2019 or parents or other qualifying individuals supported by the taxpayer. Publication 972, Child Tax Credit, available now on IRS.gov, has further details and will soon be updated for tax year 2019.

Education Credits: Two credits can help taxpayers paying higher education costs for themselves, a spouse, or dependent. The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are claimed on Form 8863, Education Credits. The AOTC is partly refundable. To get either credit, the taxpayer or student usually must receive Form 1098-T, Tuition Statement, from the school attended. Some exceptions apply. See the instructions to Form 8863 for details.

Final Thoughts

Even if you have been dreading filing your tax return, you still have time and you can still maximize your deductions by being proactive. And it may even be possible for you to pay no income tax! Certainly for next year’s filing (2020 filled in 2021) you can make adjustments right now for withholding and make every week a pay raise starting right now if you take a good hard look and do something about it today. What are you waiting for?

Remember the takeaway from today’s post? Adjust your W-4 form at work this week for next year’s tax return and its effect on your paycheck every week this year. Do it and you can thank me when you see what happens!

Do you take advantage of deductions and tax credits to lower or eliminate your income tax burden? Have you adjusted your tax withholding to avoid getting a huge refund of your own money with no interest paid?


  1. Most of us love the idea of paying no income taxes. In fact, I’ve had a few years that I was also able to achieve that. (Just after selling my last business, when I had very limited income but a big bank account to live off. :>)


    For some people – perhaps even “many” – this would represent a missed opportunity.

    Potential financial planning items to consider if you find yourself in this situation…

    If you have low enough AGI, your capital gains are taxed at zero percent. For someone that owes NO taxes at all, and has a qualifying AGI, it may make sense to harvest some capital gains. Realize the gains now, pay no taxes on the gains, and have your basis reset to the higher level so your tax liability in the future will be lower.

    Taxpayer 1, IRS 0

    Another idea is to consider filling a low bracket. Unless you think you’ll never owe taxes in the future, it may make sense to fill *at least* the 10% bracket, and likely even the 12% bracket.

    How? Consider partial Roth conversions if you have money in qualified accounts. Or, if you were thinking about a deductible IRA, you might consider a Roth contribution instead and pay the low tax rate on the money now – never owing taxes on it (or the growth) again!

    Taxpayer 2, IRS 0

    Depending on the taxpayer’s situational details, there might be other opportunities to explore. Those two are big slam-dunks though.

    1. Thanks, Brad, for weighing in on this important subject. I have to defer to your expertise in the matter and I’m sure that it’s sound advice under the right circumstances. For the many people who are in my situation, I think the option of being tax-free is pretty appealing. However, if I were in the position to do those things that you mentioned, they do sound like good opportunities. Thanks again.

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