Getting creative with easy lessons in tax avoidence

To the Times:

The Monday morning headlines reveal a tax avoidance scheme that at least some political leaders think is perfectly legal. All it takes is a little moxie. Here’s how it works:

Step one is to have a father who is a real estate tycoon who leaves the bulk of his wealth to you. Next step is to go on a real estate buying spree (using your assets as leverage only, investing as little as possible of your own money in the purchases). For as long as you own these properties you invest as little as possible in their upkeep and maintenance and pay as little as possible to employee wages and contractors who do the actual work. Once you have milked a property of all its value, sell it at a loss. That’s a key step of this formula, because the tax code (that is written just for this purpose by and for rich folks), is designed to let you deduct these losses from your income, for the current tax year as well as for past and future years. Thus the money you take from your properties while you own them is your tax free income.

If you want to be creative, don’t have too many scruples, and are willing to tread close to the edge of the law (or even a bit beyond) then there are a few other steps you can take to free up even more income from taxes. For instance, you can claim deductions for ‘expenses’ like the cost of your home (or multiple homes) as well as your personal transportation (like your jet plane) as business expenses. You can even deduct as the amount of a consulting fee you pay to family members who are also listed as salaried employees. Trying to deduct the cost of a hair stylist as a business expense, however, is frowned upon.

That’s it. A simple formula that any one who is not too squeamish about the finer points of the law can use to generate lots of tax free income. In fact if you plan it right, you pay no income tax at all for many years.

Norman K. Janes, Drexel Hill