Big Paychecks, Tiny Tax Burdens: How 21,000 Wealthy Americans Avoided Paying Income Tax

http://news.yahoo.com/big-paychecks-tiny-tax-burdens-21-000-wealthy-100029578--abc-news-politics.html

by Amy Bingham May 31, 2012

The richest woman in Wisconsin, Diane Hendricks, is worth an estimated $2.8 billion, but she did not pay a dime in state income tax in 2010, the Milwaukee Journal-Sentinel first reported.

Because of a change in how her company, ABC Supply Inc., the country's largest distributor of roofing, windows and siding, is structured, Hendricks reduced her personal state income tax burden from $2.3 million in 2009 to zero in 2010, according to records the state Department of Revenue released to the Journal-Sentinel.

While a tweak in ABC's corporate structure allowed its CEO to get out of state income taxes, a complex web of deductions and exemptions in the federal tax code have allowed more than 20,000 wealthy tax filers get off the hook on paying federal income taxes.

A recent IRS report showed that 20,752 households that reported earning more than $200,000 in 2009 paid no federal income taxes. About 1,500 of those tax-free Americans were millionaires.

So how does someone in the top 3 percent of America's income earners finagle their income tax burden down to zero? For the majority of them, it's all about donating to charity, investing in local and state governments, earning money overseas and writing off doctor bills.

In Hendricks' Wisconsin case, ABC Supply switched from an "S" corporation, which passes all of its profits and losses through its owner to be taxed under personal income, to a "C" corporation, which stands independently of its owner and whose income is subject to corporate taxes.

Scott Bianchini, ABC tax director, told the Journal-Sentinel that the switch was a "substantial part" of why Hendricks had no state income tax liability. Bianchini noted that while Hendricks' tax burden was minuscule this year, the billionaire has paid more than $10 million in taxes since 2005.

On the federal level, the nearly 21,000 high-income earners who aren't paying federal income tax represent only one half of one percent of the 4 million tax filers that make up the top 3 percent.

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