2009 Annual Report on My Tax Resistance

This report summarizes . In some places I’ve put links to previous Picket Line entries that expand on some of the topics I mention. You can follow these links by clicking on the diamond (♦) symbols.

Picket Line Annual Report

, the invasion of Iraq began. For me, this was the last straw and so I quit my job to begin an experiment in tax resistance.

A review of my goals

My primary goal was to stop financially supporting the U.S. government. I hoped to do this by legally reducing my federal income tax burden to zero: lowering my income below the tax line by taking legitimate deductions and credits.

Tax Resistance

In I missed my goal of avoiding all federal income tax, but in all of the following tax years I succeeded. However, I have had a self-employment tax assessment each year (this is different from the income tax). In I decided to stop voluntarily paying this tax as well, and so I have been charged penalties & interest in addition to the assessed tax. The IRS has periodically attempted to levy bank accounts to seize these back taxes, with mixed success.

This two-track strategy of legally avoiding the federal income tax while illegally refusing to pay the self-employment tax is an awkward and perhaps untenable compromise, but for me it currently seems to be the best alternative.

my earned income was so low that I hardly owed any taxes at all — income tax or self-employment tax.

for the last five years I have owed less than $5,000 each year; last year I owed less than $100

So far, the IRS has successfully seized about $5,700 of the total of about $10,000 that I have refused to pay. I don’t have a fail-safe plan to hide my assets, so I expect that the IRS will continue to seize money when they can find it. I have applied to the War Tax Resisters Penalty Fund to get some relief from the penalties & interest and to help distribute the credit for my tax resistance among more people, though this is a long process and I haven’t seen any reimbursement yet.

Although excise taxes are a very small part of what the government tries to get me to pay, I’ve adopted avoidance techniques here as well: for instance, I long ago gave up owning a car so I pay very little federal excise tax on gasoline (at least directly), I don’t smoke and so I don’t pay tobacco taxes, and I homebrew beer, hard cider, and sake so as to avoid the federal excise tax on alcoholic beverages.

Sustainability

I want to resist taxes over the long term, and so it is important that my expenses remain low enough that my tax-free income is also a sustainable one. , for the first time so far during my experiment, I didn’t earn a sustainable income and I had to pull from savings to meet my expenses.

My regular expenses for things like rent, utilities, food, health insurance, transportation, and such come to about $1,200 per month. Because I’m self-employed, my health insurance premium is a deductible expense that doesn’t count toward the $16,000 tax-free disposable income that I’m allowed to use under my DON Method of tax resistance (in addition, I qualify for and use a Health Savings Account so my health insurance deductible is also tax-free).

My major taxable monthly expenses, constituting almost 75% of my total monthly expenses, are rent, food, and drink

Not included in the above pie chart are any work expenses that I can deduct or my self-employment tax assessment (half of which I can deduct). My yearly living expenses, therefore, take about $12,350 out of that $16,000. If I budget-in the imposed self-employment tax, which I don’t intend to voluntarily pay, but which I expect may be seized, that would come to another $4,000 or so, half of which also counts against the $16,000. That leaves me $1,650 in wiggle room, and I’ve still got a little savings I can work with if I continue having trouble finding freelance work in this economy.

My 1040: A walkthrough

Here’s how I trimmed my 1040 this year. First, my Total Income:

Business income$348
Taxable interest$82
Ordinary dividends$126
Capital gain/loss$4,527
IRA distributions$10,600
Total Income$15,682

My business income came from two sources: my contract work and sales of my books. It’s so low partially because business was bad and partially because I’m still depreciating some of ’s big expenses.

The capital gains are attributable to sales of mutual funds and stocks and to capital gains distributions from a mutual fund. I got very lucky and sold a bunch of stuff at the yearly peak in and then again in just before the bottom fell out. I don’t think I’ll have to worry about capital gains again for quite some time.

The “IRA distributions” line-item is a neat trick I last used in . Since I didn’t earn as much as I could have earned tax-free last year, I slid $10,600 over from my traditional IRA into a Roth IRA. In order to do this, I have to pay taxes on that money at my current rate of taxation (that’s why it counts as part of my “Total Income” above). But because my tax rate is zero, that’s not a problem. And because I’m theoretically paying the tax on that money now, I won’t have to pay any taxes on it when I withdraw the money on retirement.

Now on to my Adjusted Gross Income:

Total Income$15,682
HSA deduction−$0
½ self-employment tax−$25
Self-employed health insurance deduction−$324
IRA deduction−$0
SEP deduction−$0
Adjusted Gross Income$15,334

, because I earned so little, I didn’t put any money into retirement accounts or into my Health Savings Account, so I have fewer deductions here than usual and I’m not using the retirement savings tax credit as I have been using in past years.

The self-employment tax deduction works like this: When you work for someone else, your employer pays half of your FICA and the other half comes out of your paycheck. This is just silly accounting for the most part, but it does mean that half of your FICA doesn’t count as your income and so you don’t pay income tax on it (isn’t that rich — they charge you income tax on money you never saw because it was taken as your contributions to social security — and then they may charge you income tax again on your social security benefits if you’re lucky enough to live so long!). If you’re self-employed, you pay both halves and it’s all considered income, so the IRS lets you take half of your self-employment tax as a deduction here to even things out (yes, even if you’re refusing to pay it like I am).

I wasn’t as concerned about the $16,000 ceiling this year, because that has to do with the retirement savings tax credit, which I’m not using. But as it turns out, my earned income was so low this year that even if I did owe some small amount of income tax, my total tax (income tax + self employment tax) was bound to be negligible.

The IRS flubbed its handling of my tax return  — making a weird “correction” to my return and then uncorrecting it after I pointed out their error. The upshot of this was that my return was still in limbo while the agency was passing out ’s “Recovery Rebate” stimulus checks and so I wasn’t issued one. That was fine with me, since they would have just seized mine and applied it to my unpaid tax bill. Because they didn’t give me the rebate , I get to use it now to offset any income tax on my return, so this actually works out very well for me. As it turns out, I could have been even more liberal with my income or my Roth conversion and still been below the line.

Now we go from Adjusted Gross Income to Taxable Income:

Adjusted Gross Income$15,334
Standard deduction−$5,450
Personal exemption−$3,500
Taxable Income$6,384

because of qualified dividends and capital gains, I had to use a different method for figuring out the tax due on this amount — I couldn’t just reference the tables in the back of the booklet at this point. This worked out in my favor: My tax came to $199, less than it would have by the other method. But it didn’t matter much either way: the recovery rebate payment reduced my federal income tax to zero and left me with just a small amount of self-employment tax (and possibly some penalty for refusing to pay it).

Income Tax$199
Self-employment tax$49
Recovery Rebate Payment−$199
Tax owed$49

Other Goals

I hope to encourage other people to consider tax resistance as a tactic and I hope that The Picket Line is a good resource for people doing tax resistance and for those considering it. I keep trying to make it more useful.

I put a great deal of effort into creating two documentary histories of tax resistance: We Won’t Pay! — a 600-page behemoth that covers tax resisters and tax resistance campaigns from the Roman Empire to the present day — and American Quaker War Tax Resistance — a one-of-a-kind compilation that covers the evolution of war tax resistance in the Society of Friends in America. I’ve put in many long hours on these projects and have assembled books that I hope will interest and inspire tax resisters, activists, and others for years to come. In addition, most of the public domain material in these books I have also shared on this blog, and have thereby made them available free-of-charge to on-line researchers.

Money Magazine featured the story of my resistance last year in an article on “How To Pay Zero Taxes.” I’ve also done some writing for More Than a Paycheck and Frugal for Life, and have assembled some research papers and fact sheets on such subjects as: 22 ways people can support tax resisters, perspectives on taxpayer complicity, ethical illusions, and the inadvisability of the “peace tax fund” campaign.

I have also spread the word elsewhere. I’ve sent many an email to people I thought I might be able to nudge into resistance, I’ve injected the tax resistance meme into discussions online and off, and I agitate for tax resistance at peacenik gatherings and events like the recent Bay Area Anarchist Bookfair. I spoke at a local group calling itself The Abundance League about how by putting all of my energy on the side of my values instead of letting the government siphon away my energy for its priorities, I was living a more abundant life. That talk was later reprinted in Simple Living News.

I also put in some work to teach folks how to brew their own tasty alcoholic beverages, thereby cutting into the federal excise tax a bit and spreading the gospel of self-reliance and do-it-yourself.

In addition, I did a little volunteer work with Courage to Resist, which is helping soldiers who have decided to refuse to deploy in America’s wars.

The state of the world and the tax resistance movements

The wars drag on, and the new administration seems likely to guarantee impunity for the last administration’s torturers, thereby endorsing America’s torture policy. The thievery and mendacity of the politicians and the wizards of financial corruption that eat from the same troughs in Washington seems to know no bounds.

, there were three different ongoing war tax resistance campaigns and an anti-war movement with some momentum behind it. Now the war tax resistance movement (and the anti-war movement in general) is in the doldrums, deflated by the election of Obama who, though he has surrounded himself with hawks in his cabinet, has vowed to increase the size and expense of the military and to quickly ramp up the Afghanistan war, and has wasted no time in approving more of those air strikes that tend to leave such tiny bodies flung about, is the darling of the progressives who make up much of the ostensible peace movement.

While much of the peace movement has become complacent about supporting the government now that the Democrats are in charge, tax resistance has started bubbling up from other quarters. Tax resistance by gay marriage rights activists became a big story last year, and I’m hearing a lot more talk about tax resistance by people in the pro-life movement and by people who just feel like the government isn’t spending their hard-earned money wisely at a time when families are being forced to cut back.

Prospects for the coming year

Assuming no major unexpected expenses, and assuming the tax law doesn’t undergo any radical changes, I’m well-positioned to have another year of living comfortably and well under the income tax line, though I will “owe” SECA again (assuming I find some employment!). I’ve budgeted for the likelihood that the IRS will continue to seize money from me for unpaid back taxes, so in case this happens, it won’t slow me down.

I joined the Administrative Committee of NWTRCC. I attended the Spring national gathering in Birmingham, Alabama (and led a workshop on persuasive face-to-face communication strategies there), and the Fall national gathering in Eugene, Oregon. I’ll also be attending the national gathering in Virginia later this Spring. I’m also starting to take on more of a role in our local tax resistance group — Northern California War Tax Resistance.

So on to lucky year #7 of what is looking less and less like an experiment and more and more like a lifestyle.

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