The Business End of the Federal Income Tax
Covid-19 had a dramatic impact on the economy as many employees suddenly found themselves temporarily or not-so-temporarily out of work. Lots of people discovered the benefits of being self-employed. Of course, one of the presenting advantages at the time was not having someone tell you had to wear a mask while you were working by yourself in the corner of an otherwise abandoned warehouse. Or having an employer insist that you get an injection as a newly-added condition of employment. With this influx of small business owners, it is important to consider one of the largest business expenses for any enterprise: taxes.
Defining Terms
American tax law is codified in the United States Code (USC) and is organized by title, chapter and section.
In USC, Title 26, Chapter 79, Section 7701, we find this definition:
(26) Trade or business
The term “trade or business” includes the performance of the functions of a public office.
The glaring illumination of this definition is that it excludes most Americans!
Breaking it Down and Doing the Math
2.87 Million Federal Government Employees
678,972 Citizens and Residents of Washington DC
2.6 Million Federal Annuitants (former federal employees receiving benefits)
336 Million United States Citizens
2.87 million federal government employees plus 678,972 citizens and residents of Washington D.C. plus 2.6 million federal annuitants divided by 336 million U.S. citizens equals 1.8%.
98.2% of Americans are not required to file and pay federal income tax.
How to Stop
This quote from former IRS Commissioners Fred Goldberg and Charles Rossotti is revealing:
What’s critical here is that substantially all of the revenue increase does not come from IRS audits—it comes from taxpayers … when they file their returns.
If you are part of the 98% of Americans that are not liable to file and pay federal income tax, you do not have to file a tax return.
