Frugal Living As A Form Of Tax Resistance

I recently read a couple of articles by David Gross, that I found very informative. His tips are geared towards resisting taxes legally, however, even if you aren't trying to make a statement, his methods are fantastic tips to remember so that we can all save on our taxes.
Here is how Mr. Gross says it works:

It starts by noticing that the federal income tax isn’t designed to tax all of your income, just your “taxable income.” So path #1 involves removing as much
of your income as possible from the “taxable income” category.


Once you’ve done this, you’ll end up with a certain amount of “taxable income” and a certain amount of tax owed on it. But that’s not the end of the story. This tax can be offset, eliminated or even reversed into a “refund” by using various credits. Path #2 is qualifying for these credits.


Then, once you run the numbers and figure out how much money you can earn and
spend without owing taxes, you need to take a look at your lifestyle and your
goals and adjust them if necessary so that you’re living in your means
at this income level.


That’s it, in a nutshell.

Some income is invisible to the tax man. For instance, if you had money
deducted from your paycheck before taxes are deducted from your check.

• 401-K
• Health Savings Account
• Some companies may withhold money from your paycheck to buy bus and subway
• passes
• Check your company to see what is available to you



• Your “total income” also includes any “capital gains” you might have made during the year — for instance, if you sold stock
  or property at a profit. On the other hand, if you sold stock at a loss you
  can subtract this loss when calculating the “total income” (up to
  $3,000 — don’t worry if you lost more than this because you can
  save up the rest of the loss to use in future tax years).



• Business owners can deduct business losses.



• other deductions may apply to you as well

Now that you have your "Total income" it's time to get to your "Adjusted Gross Income"

By “adjusted” they mean “lowered” because all of the
adjustments are deductions (so use as many of these as you can). Your
“adjusted gross income” is what is used to calculate some of the
credits that I cover in “Path 2” below — and the lower it
is, the better. For myself, the key to qualifying for credits that brought
my taxes down to zero was to get my “adjusted gross income” under
$15,000.

• a tax-deferred Individual Retirement Account (IRA) — not only because the money you put in (up to $4,000) is deducted right away from your “total income” but because by putting money in a retirement account, you can qualify for a generous credit. Beware, though, that there are forms of IRA, such as the “Roth IRA,” that aren’t tax-deferred and that won’t lower your adjusted gross income. Ask about the tax ramifications before you invest.
  



• You can also “adjust” up to $4,000 off of your income by spending
  money on tuition for higher education.



• If you run your own business or are otherwise self-employed, you may be able to take a number of deductions here on things like your health insurance costs, and part of the cost of your payroll taxes (FICA)



• Other deductions are available for interest paid on student loans and on
  educational supplies bought by teachers. These aren’t the only
  deductions, and I haven’t covered any of them in much depth or detail.
  It’s just an overview to give you a feel for what is available.

From “adjusted gross income” to “taxable income”

There are two remaining deductions: the personal exemption, and the itemized
or standard deduction. Once these are subtracted, you are left with your
“taxable income.”

• The personal exemption is just a certain amount of income that the law lets
  you have tax-free, no questions asked. Don’t get too excited —
  it’s only a little over $3,000. You also get a similarly-sized
  exemption for each of your dependents



• The standard deduction is similar, and somewhat larger, but you have the
  option of either taking it or “itemizing.” By itemizing,
  you can take a whole mess of deductions for things like charitable donations,
  medical expenses, interest paid on loans, job expenses, tax preparation fees,
  and such. Even so, for a lot of people, the standard deduction is higher than
  their itemized deductions would be, so they’re better off taking the
  standard deduction instead

(Itemization note) A few years ago, when my grandmother died, I inherited a few thousand dollars, I donated a percentage of that to charity, however, the donation was large enough that I couldn't deduct the everything at once. The law allowed me to carry that deduction over, I was able to deduct that one donation (or a piece of it) over the course of three (3) years.

Finally, Mr. Gross touches on tax credits:

There are a handful of ways you can get tax credits. These credits are not
deductions that are subtracted from your income, but they are subtracted
directly from the tax you would otherwise owe. For instance, if you looked
up your taxable income in the tax table and found that you should owe $750,
but you qualify for a $500 credit — that credit is subtracted directly
from the owed tax: $750 − $500 = $250.


Among these credits is one for education expenses (but note you can either
take this credit or the deduction on tuition I mentioned in
“Path 1” above — not both). Another gives you a credit for
income tax you’ve paid to a foreign government. Another gives you a
credit if you spent money on child care or dependent care. You also get a
per-child “Child Tax Credit” — and that is higher now than
it has been in recent years. My favorite credit, though (childless as I am),
is the retirement savings credit.


Remember how when you put money into a 401k or an
IRA, you
were able to deduct that amount from your income before calculating your tax?
Well now it gets better. You can take a certain percentage of the first
$2,000 you put into retirement accounts as a credit. If your “adjusted
gross income” is under $15,000, that percentage is 50%, and your credit
is as much as $1,000, which is guaranteed to drop your tax burden down to
zero. That’s how I did it.


The “Earned Income Tax Credit” is a special creature. Most other
credits allow you, at best, to lower your tax to zero. The Earned Income Tax
Credit allows you to lower your tax below zero so that the government
actually owes you money.


In order to qualify for this, your adjusted gross income has to be very low
(but you must have earned some income during the year). It’s also
easier to qualify if you have at least one dependent child. Millions of
people do qualify for the
EITC (and
many of them fail to take advantage of it), but it does typically require
having a very low income