Earn $1 Million, Pay No Tax

Tom Herman has an interesting article in today's Wall Street Journal, Earn $1 Million And Pay No Tax; A Small but Growing Club Of High-Income Filers Legally Avoids IRS's Grasp, Despite the AMT:

The Internal Revenue Service says that of the 2.6 million individual tax returns that reported income of $200,000 or more, there were 4,119 taxpayers who owed zero federal and foreign income taxes for 2001, the latest available year. That was up from 2,320 in 2000 and only 1,562 as recently as 1997. Typically, there is no one explanation for achieving tax-free status. It usually is a combination of factors, such as large amounts of tax-exempt bond interest, medical bills, charitable contributions, casualty losses (such as from a fire or earthquake), business losses and investment losses....

Here are a few hypothetical examples of how members of the zero-tax club managed to get in the door:

• Large Deductions
• Municipal Bonds
• Partnership and S Corp Losses
• Investment Losses