It's not as easy as it used to be, but it's still possible to make $200,000 a year and avoid paying any federal income tax.
In fact, 472 couples and individuals with incomes averaging $447,000 "zeroed out" on returns filed in 1988, the Internal Revenue Service says. That was down from 595 who paid no tax the previous year.In a report released Wednesday, the IRS said 557,848 returns showed income of $200,000 or more, making those people among the highest-earning 0.5 percent. In addition to those who paid no tax, 9,300 high-income people paid less than 5 percent while 17,082 paid under 10 percent - about the same as paid by the average $35,000-a-year family.
The report, required annually by Congress, said 149 of the 472 used itemized deductions to wipe out their liability. Others used losses from farm, business and partnership operations.
In contrast, only 76 of the well-to-do who paid no taxes reported losses on the sale of investments. Those capital losses averaged only $2,600. The IRS said 273 reported capital gains - profits from investment sales - that averaged more than $384,000.
The analysis is based on raw tax returns. IRS audits could result in assessments that would move some of the couples and individuals out of the non-taxpaying category.
The report said a special levy, called the alternative minimum tax, made taxpayers out of 3,396 high-income people who otherwise would have gotten off scot-free.
This levy, designed to ensure that high earners pay some tax regardless of how many legitimate deductions they have, hit 35,223 people in the over-$200,000 group for a total of $1 billion. However, the alternative tax does not apply in all cases.
Because capital gains now are taxed in the same fashion as ordinary income - eliminating capital gains as a tax-avoidance device - the take from the minimum tax was down sharply compared with returns filed in 1987. For that year, the minimum tax produced $4.8 billion from 158.903 high-income filers.
Under orders from Congress, the IRS has been reporting the tax situation of upper-income Americans since 1977. In that year, there were 53 returns reporting income of $200,000 or more while paying no taxes.
Although the law has been changed several times in an effort to prevent the well-to-do from shielding their income, the figure grew to 613 on returns filed in 1986. Analysts say anti-tax-shelter rules enacted in 1986 will continue to reduce the number.
Through the years, the number of tax-free rich people has been only a tiny fraction of the wealthy. The new IRS report showed the 557,848 taxpayers in the $200,000-and-over group paid a total $72.7 billion, an average of $130,276 apiece.