Large Incomes, Small Tax Burdens
Her company, ABC Supply, the largest distributor of windows, siding and roofing in the country made a change on how it was structured, reducing her personal liability for state income tax from close to $2.9 million for 2009 to zero for 2010.
While that tweak at Hendricks’ company allowed her to get out of paying state taxes, a complex group of exemptions and deductions in the tax code for federal taxes is allowing over 20,000 taxpayers to not pay any federal income taxes.
A recent report from the IRA showed that over 20,750 households with reported earnings in excess of $200,000 during the 2009 tax year, paid absolutely no federal income tax. Nearly 1,500 of those Americans who did not pay federal taxes were millionaires.
How someone who is in the top 3% of income earners in the U.S. can arrange their income tax burden to zero is disturbing to many. For many it has to do with donating to charities, earning overseas money, investing in state and local governments and writing off medical bills.
In the case of Hendricks, her company switched from being an “S” corporation to a “C” corporation. An “S” Corp passes its earnings and losses onto its owner to be taxed as personal income. A “C” Corp, stands apart from its owner and its income is subject to corporate taxing.