The Truth About Tax Loopholes

Many people are under the misguided impression that the tax law in the United States is perfect. However, that’s definitely not the case. There are some glaring loopholes within the tax law.   

When we say “loophole,” we are talking about provisions that exist in the tax code for reducing tax liability. Most of these provisions were designed for real and legitimate reasons, but that does not stop others from taking advantage of them or using them in unintended ways. Others, however, were designed solely with the intention of helping taxpayers, which is nice to know.

Some of these loopholes deserve being explored.

The Carried Interest Loophole

This glaring loophole most often benefits hedge fund managers, private equity partners, and venture capitalists. Through it, you can enjoy having any compensation you earn taxed at a lower rate than the regular income tax rate. This happens because of the “long-term capital gains rate.”

The Home-Sale Exclusion Loophole

Another loophole applies to those who sell their home and end up making a profit. These people won’t owe capital-gains taxes on the first $250,000 (if single) or $500,000 (if married filing jointly) they earn in profit. Most people aren’t earning this much for their home anyway, so it’s safe to say that the vast majority of people who sell their homes can benefit from this loophole.

The Earned Income Tax Credit Loophole

Some people who fall below a certain income can take advantage of the “Earned Income Tax Credit” loophole, which allows them to reduce their tax bill. This credit is refundable, meaning people can even end up earning money from the IRS if the math plays our right.

As you can see, lots of tax loopholes do exist, and some are definitely worth taking advantage of. To learn more about these or other loopholes and how to use them to your benefit, speak with a tax professional.