How To Pay No Income Taxes On $100,000 (Or More)

Sure, it’s solely doable to make greater than $100,000 and pay no federal revenue tax on it. This little trick is totally authorized and — extremely! — the tax code nearly appears to encourage you to make use of it.

Even in the event you don’t qualify for this technique, you continue to have some ways to drastically cut back your tax legal responsibility.

Let’s begin with the premise that you could take house $126,700 freed from federal revenue taxes. The factor is, you may make a good bit greater than that and nonetheless not pay revenue taxes, however we’ll keep on with the fundamentals for every now and then later present how one can flex your incomes potential and nonetheless keep away from revenue taxes.

To make the most of this technique, you’ll be utilizing two key components:

• The tax price on long-term capital good points and certified dividends
• The usual deduction in your revenue taxes

The massive factor to know, nonetheless, is that you could acknowledge as a lot as $96,700 in certified funding revenue as a married couple and pay no federal revenue tax. Tack on one other $30,000 in revenue that’s tax-free from an ordinary deduction, and you’ll escape revenue tax on a minimum of $126,700.

Let’s break these components down and present you the way they add as much as paying no federal revenue tax.

Capital good points: 0 p.c tax price on long-term funding revenue

The tax price on funding revenue — from long-term capital good points and certified dividends — is a large a part of the way you get to keep away from taxation on a big revenue. The tax code has a (largely forgotten) particular 0 p.c price for these incomes lower than sure quantities of taxable revenue (your adjusted gross revenue minus your deduction, both normal or itemized).

Tax charges for long-term capital good points and certified dividends for 2025

If you happen to’re married submitting collectively, you fall into the 0 p.c bracket in case your taxable revenue is lower than $96,700 in 2025. If you happen to file as a person, you’ll must earn $48,350 or much less to make the most of the particular bracket.

You’ll wish to watch out that your funding revenue meets the necessities for certified dividends and long-term capital good points, nonetheless.

• Lengthy-term capital good points embody earnings from promoting securities that you simply’ve held for greater than a yr. If you happen to purchase and promote in lower than a yr, you pay at atypical revenue charges.
• To be a professional dividend, the dividend should be paid by a U.S. company or a professional overseas firm, reminiscent of one buying and selling on a U.S. alternate. The inventory should have been held for greater than 60 days within the 121-day interval that begins 60 days earlier than the inventory’s ex-dividend date for widespread inventory. For most popular inventory, the dividend is certified in the event you maintain it for greater than 90 days within the 181-day interval that begins 90 days earlier than the ex-dividend date. Lastly, the inventory should not in any other case be excluded. Some dividends, reminiscent of these issued by actual property funding trusts (REITs) or grasp restricted partnerships, don’t qualify for the particular tax therapy, and payouts are handled as atypical revenue.

That’s a whole lot of verbiage, however the upshot is that almost all dividends qualify, and in the event you’re training a buy-and-hold technique with a few of the prime long-term investments, then the holding necessities are mainly a non-issue.

If there’s a catch, it’s this: Each greenback of taxable atypical revenue that you simply earn eliminates a greenback of this funding revenue that could possibly be topic to no taxes. If wages from a job, for instance, exceed the 0 p.c degree of taxable revenue, your long-term capital good points and certified dividends will bump as much as a 15 and even 20 p.c tax price, in the event you earn sufficient. That’s the place the usual (or itemized) deduction is available in, lowering your atypical revenue as a lot as doable.

Commonplace deduction: The straightforward solution to decrease your taxable revenue

The second key a part of the technique right here is to take full benefit of your normal deduction. By means of the deduction, all taxpayers get the primary portion of their revenue tax-free. And that quantity will depend on your tax submitting standing: single, married submitting collectively and others.

The usual deduction can cut back any sort of revenue, reminiscent of funding revenue or earned revenue (that’s, cash from a job).

It’s price noting, nonetheless, that in the event you earn any revenue from labor (not investments), you then nonetheless should pay payroll taxes. Payroll taxes cowl issues reminiscent of Social Safety and Medicare. As an worker, you’re on the hook for a tax of 6.2 p.c for Social Safety (as much as a sure revenue threshold) and an additional 1.45 p.c for Medicare (with no revenue cap). If you happen to’re self-employed or a contractor, these percentages are doubled since you pay the employer’s facet too. So whilst you can keep away from revenue taxes, you gained’t be capable of escape payroll taxes on earned revenue.

Add up the $30,000 normal deduction and the $96,700 of protected funding revenue, and a married couple might make $126,700 and never pay a dime of federal revenue taxes. Even single filers might declare $63,350 tax-free utilizing the identical technique. These thresholds that the IRS units are inclined to rise with time, too.

Utilizing this technique, after all, you’ll wish to be extraordinarily cautious that you simply keep on with the principles and don’t exceed the revenue ranges. Your tax advisor will help you make sensible choices right here, too.

5 extra methods to get tax-free revenue

Making $126,700 in tax-free revenue sounds nice. So whereas we’re at it, let’s cowl just a few extra methods that you could enhance your revenue and nonetheless not pay revenue taxes. A married couple might simply earn tens of hundreds of {dollars} extra and nonetheless use this technique.

Utilizing the identical plan as above, you may pile on much more revenue tax-free, in the event you do it strategically. The important thing to recollect is that your taxable revenue should keep under the important thing thresholds. Which means you may have two extra levers to tug — changes to revenue and deductions — to work the tax code in your favor.

Listed below are 5 extra methods that you need to use to get much more tax-free revenue:

These are only a few of the extra highly effective methods to scale back your taxable revenue by claiming all of the changes and deductions that you simply’re entitled to and in any other case optimizing your revenue. There are dozens of different changes and deductions that may influence your taxable revenue.

For instance, you may contribute to a standard IRA in the event you’re working, however your revenue should be below a sure threshold, or it gained’t be tax-deductible. For these with an employer’s retirement plan, that degree is simply $126,000 in modified adjusted gross revenue in the event you’re married submitting collectively in 2025. That’s one other $7,000 per individual tax-free, in the event you’re below age 50, or $8,000, if older.

Upshot: Ranging from the baseline of $126,000, a married couple below age 50 might add on one other $55,550 in tax-free revenue by maxing out an employer’s retirement plan and an HSA alone. If you happen to itemize deductions, it’s doable to get an incremental $20,000 or extra from that deduction, pushing a pair’s complete tax-free revenue towards $200,000.

After all, maxing out your tax-free revenue with this technique begins with having property that produce long-term capital good points and certified dividends — in different phrases, shares and inventory funds — permitting you to acknowledge funding revenue at a 0 p.c price. You then use this revenue to contribute extra to retirement accounts from earned revenue and pay for dwelling bills.

Even in the event you don’t have that degree of property to work with, nonetheless, you may nonetheless make the most of many of those tax-saving changes and deductions to scale back your taxable revenue.

Backside line

It’s doable to make greater than $100,000 and pay no federal revenue taxes, however it’s simpler to do in the event you begin with some property already. The tax code privileges revenue from investments over revenue from work, however you may nonetheless make the tax code give you the results you want even with out being a belief fund child.

Editorial Disclaimer: All traders are suggested to conduct their very own impartial analysis into funding methods earlier than investing resolution. As well as, traders are suggested that previous funding product efficiency isn’t any assure of future value appreciation.