No, this isn’t some sovereign citizen movement stuff. The government publishes the tax code and in the the tax code they offer credits and deductions. You can virtually eliminate your tax bill by doing the thing they incentivize.

Here’s a short list of things the government wants you to do which can reduce or eliminate your tax bill:

• Make or adopt babies
• Start a business
• Invest money through you’re retirement account – or for at least 1 year
• Buy batteries, solar panels, and EVs
• Go back to school
• Donate money to charity
• Borrow money to buy a home or from your home to improve your home

Tax Credits Vs. Tax Deductions

Tax Credits vs Tax Deductions:

• A tax credit directly reduces the amount of tax you owe, dollar for dollar. For example, a $1,000 tax credit reduces your tax bill by $1,000.
• A tax deduction reduces your taxable income, and its value depends on your tax bracket. For example, a $1,000 deduction lowers your taxable income by $1,000, which results in a smaller reduction in your tax bill than a $1,000 credit.
• Tax credits are generally more valuable than deductions of the same amount because they provide a dollar-for-dollar reduction in your taxes.

Other Tax Code Concepts:

• Standard Deduction: A fixed dollar amount that reduces your taxable income. It’s based on your filing status and is taken instead of itemizing deductions.
• Itemized Deductions: Specific expenses you can deduct such as mortgage interest, state and local taxes, charitable donations, and medical expenses. You itemize if your total itemized deductions exceed the standard deduction.
• Above-the-Line Deductions: Deductions taken before calculating your Adjusted Gross Income (AGI), such as IRA contributions, student loan interest, and self-employment taxes.
• Exemptions: Previously an amount you could deduct for yourself and dependents, but eliminated starting in 2018 under tax reform.
• Exclusions: Income that is not subject to tax, such as municipal bond interest and certain employer-provided benefits.
• Deferrals: Postponing taxes to a future year, such as with 401(k) contributions and traditional IRAs.

In summary, tax credits, deductions, exemptions, exclusions and deferrals all help reduce your taxable income and/or the amount of tax owed, but each works a bit differently. Proper tax planning involves strategically using a combination of these to minimize your overall tax liability.

2024 Tax Credits

Here is a brief summary of the 15 tax credits available for married couples filing jointly in 2024 generated by Perplexity.ai, this is a starting point for doing your own research:

1. Earned Income Tax Credit (EITC): A refundable credit for low to moderate-income workers. The maximum credit for 2023 was $7,430 for families with 3 or more children.
2. Child Tax Credit (CTC): A credit of up to $2,000 per qualifying child under age 17. Up to $1,600 is refundable.
3. Credit for Other Dependents (ODC): A non-refundable credit of up to $500 for each dependent who doesn’t qualify for the CTC.
4. Child and Dependent Care Credit (CDCC): A credit for expenses paid for the care of qualifying children under 13 or disabled dependents to enable the taxpayer to work. The credit can be up to 35% of expenses.
5. Adoption Credit: A non-refundable credit of up to $16,810 per child for qualified adoption expenses.
6. American Opportunity Tax Credit (AOTC): A partially refundable credit of up to $2,500 per student for the first four years of post-secondary education.
7. Lifetime Learning Credit (LLC): A non-refundable credit of up to $2,000 per tax return for qualified tuition and related expenses.
8. Retirement Savings Contributions Credit (Saver’s Credit): A non-refundable credit of up to $1,000 ($2,000 if married filing jointly) for eligible contributions to retirement plans. The credit rate varies from 10% to 50% based on adjusted gross income.
9. Premium Tax Credit: A refundable credit that helps eligible individuals and families cover premiums for health insurance purchased through the Health Insurance Marketplace.
10. Residential Energy Efficient Property Credit: A non-refundable credit for investments in renewable energy equipment in your home, such as solar electric systems, solar water heaters, fuel cells, small wind turbines, and geothermal heat pumps.
11. Nonbusiness Energy Property Credit: A non-refundable credit for energy-efficient improvements made to your primary residence, such as insulation, windows, doors, and roofs.
12. Alternative Motor Vehicle Credit: A non-refundable credit for purchasing a new qualified fuel cell motor vehicle.
13. Qualified Plug-in Electric Drive Motor Vehicle Credit: A non-refundable credit for purchasing a new qualified plug-in electric drive motor vehicle.
14. Credit for the Elderly or the Disabled: A non-refundable credit for taxpayers who are either 65 or older or under 65 and permanently and totally disabled, subject to income limitations.
15. Foreign Tax Credit: A non-refundable credit for income taxes paid to a foreign government due to foreign income.

2024 Tax Deductions

Itemized Deductions (if exceeding standard deduction)[1][14]:

• Mortgage interest on first $750,000 of debt
• Charitable contributions
• State and local taxes (SALT) up to $10,000
• Medical expenses exceeding 7.5% of adjusted gross income

1. IRA Contributions: Up to $7,000 per person ($6,500 in 2023).
2. Student Loan Interest: Up to $2,500 if income is below phaseout threshold.
3. Self-employment expenses.

How To Maximize Deductions

Bunching:

Bunching is when you defer payments to one tax year in order to maximize your deductions. Simple ways to do this is by paying deferring medical expenses, and paying property taxes, mortgage interest and other deductible payments early to get them all into the same year. You can also do this with charitable donations using a DAF or Donor Advised Fund.

So for example, to bunch property taxes, you would pay them in January, June, and then again in December (1 month early) to combine 3 installments into one tax period. You can also make your January mortgage payment in December 31st to get an extra month of interest expense.

If you have a business, you can shift taxable income to the business and use it for deductible expenses like funding your retirement account, buying new equipment, etc.

Filing your tax returns are mandatory, but paying taxes can be optional if you’re industrious and creative. Taking advantage of the tax code is difficult to do because we don’t know what’s in it but an AI like Perplexity can help you sort through it to easily find a strategy. As always, confirm what the AI is telling you is correct by reading the tax code yourself or checking with a qualified tax advisor.