Did you know that federal income taxes are elective and that in the 65,000 or so pages of the Internal Revenue Code there isn’t a single line saying “every U.S. citizen must pay federal income tax.”? In fact, millions don’t pay any tax at all. A few of these tax filers have huge incomes. These folks have disappeared from IRS revenue sources – and you can too. The key work, “elective” means that you, and only you, choose your own mix of taxable and non taxable income sources and thus your personal tax rate.Also, did you know that the IRS has computer programs specifically designed to select tax filings for audits? Selected filings are rated for the likelihood of a financial recovery of deemed unpaid taxes. Think of it as cheater-heater profiling. IRS logic works something like this: Find the cheaters and then find out who’s really, really hot in this group and work backwards from there. IRS runs these profiles 24x7 - like machines raking earth for gems. Unlike lustrous diamonds, you do not want your tax filing to glisten. You want it to look dull, very dull. The goal of this article is to help personal tax filers – you - to do just that. For simplicity of numbers, we examine the most common tax filing, married filing jointly, MFJ. If you’re single, the principle still applies. Disappearing from the IRS is not magic, it’s all about habits.Through a closely guarded program called the TCMP, the Tax Compliance Measurement Program, IRS knows just how, when, where and how often people are likely to cheat on their income taxes. With the aid of the TCMP, about 0.6%, or 1.5 million tax filings are audited annually. Instead of looking at who is painted for an audit, let’s see who is least likely to be selected. Taxpayers with a low audit profile are people who:

1. Have little taxable earnings
2. Have simple tax filings like a 1040EZ or 1040A
3. Have error free filings.
4. Have clean filing histories.
5. Have normal deductible expenses for their income level on form 1040
6. Do not file a schedule C and who may not own a business interest wholly or as a partner.
7. Have an IRS blessed professional such as a CPA, or an Enrolled Agent, prepare their taxes AND this Pro has a clean IRS record.

So what’s this got to do with you anyway? You think your filing is anything but this? Perhaps so, but we are not talking about being invisible. The question is how could you become invisible? The answer is to gradually look more and more like a small fish in the big tax pond. This is easier for retirees to accomplish than their working brethren because retirees can control their taxable income. You can do it too. Here’s how:Add up all forms of non-taxable household income like Social Security, Roth IRA, Muni bonds and tax-free mutual funds, health savings accounts, health reimbursement arrangements, HRA, tax-free stock sales (yes like dividends they can be tax-free), non-taxable dividends and non-taxable disbursements such as insurance and law suit damages to you. From here, fill in the gap with taxable sources such as an IRA or a qualified retirement plan, QRP. At this point, you will find yourself in a marginal tax bracket, the tax rate owed on the last dollar of taxable income you got last year, ranging from 0 to 35%. The 2009 0% tax rate for married taxpayers filing jointly is the sum of $11,400, the standard deduction, plus $7,300 for two exemptions. Thus, for married couples, $18,700 may be taken from a traditional IRA or a QRP tax-free if there are no other taxable sources.The next $16,700 is taxed at 10% which would equal $35,400 in income. The nest step, a 15%, rate is for 2009 MFJ taxable income of $16,701 - $67,900. In the best scenario, retirees can live tax-free and be boring to IRS. If you are not there yet, here are a few ideas to discuss with your tax advisor:· Swap highly taxed investments such as bonds and bond funds in your taxable account with low tax investments like stocks and dividend payers residing in your Roth or traditional IRA.
· Double indemnity: If have a tax liability and you earned less than $27,751 single, or $53,001 MFJ for 2009, think the Saver’s (50%) Tax Credit. IRS will credit qualified filers with up to 50% of every dollar contributed to a Roth, traditional IRA, Simple, or any QRP. With all but a Roth, filers will also enjoy a tax deduction to boot, further reducing AGI and tax rate. You can even delay till April 15th to make your contribution – even if the refund has been sitting in your bank account. See IRS pub 590 at www.IRS.gov.
· Delay taking social security until at least your full retirement age to avoid a steep earnings penalty. Each year bumps income up by about 7.5% (potentially) tax-free. Try getting even half that guaranteed rate from Wall St. Fat chance!
· Be honest and legitimate with all IRS dealings and keep good records for 7 years. Supply them with records early and often if requested always along with a cover letter because proof of dates can be crucial.
· Contribute to and pay for medical expenses including Medicare parts A & B and LTCI premiums and OTC drugs, even aspirin, with an HRA or H.S.A. Contributions cut your taxable income and distributions are exempt from the 7.5% AGI rule to qualify for a deduction. See IRS publication 502 at www.IRS.gov.
· Create a portfolio of low volatility dividend paying stocks. The yield can be over four times what CDs pay and the income may be tax-free in 2010. Growth stocks held over one year and sold this year also may qualify as tax-free.
· Consider claiming charitable donations for Haiti before March 1, 2010 for the 2009 tax year under a new federal law IF it will help you cut your tax burden. Otherwise, use it in 2010.
· Consider residing in an income tax free state like Florida, Nevada, or New Hampshire to free up more cash for your living expenses and thus circumvent pulling these dollars to pay taxes from taxable accounts – triggering even more taxation.
· When you sell a personal residence add up your tax basis and take all your exclusions, $250,000 per person MFJ, to stay off the IRS radar screen.Follow these steps and you could be earning up to six figures while paying as little as a zero federal income tax rate. A small tax liability can reduce your IRS profile. Being a nothing to IRS could be a gift to an important person, yourself! It’s all legal, but if you are feeling a tinge of guilt, just a tinge, you can elect to spread these tax savings to charities or governments at any level – local to federal, all with IRS stamp of approval. Look small and you will look very boring and if you keep at it, and make it a habit, you may disappear happily into IRS obscurity.

IRS is less concerned about LLC and corporate filings than schedule C filings. The latter are common and easily available to all filers and unlike corporations, schedule Cs are integrated with personal tax returns.
Must be heterosexual under federal rules