Thursday, June 19, 2008

Homelessness and Taxes, Part II

I've been on vacation recently and haven't had the chance to blog, but ran across this YouTube video recently that ties in almost perfectly to my last post. It is definitely a joke and a pretty ridiculous one at that, but the guy raises the same point I did a week-and-a-half ago: homeless people who collect "donations" from other people do not have to pay federal income tax on that money.

It got me thinking about how it is otherwise nearly impossible to make any kind of person-to-person transaction without tax implications being involved. Earn money from a job, get taxed (often twice). Own a home, get taxed. Buy food, get taxed. Buy any other good, get taxed more. Own the company that collects the money I just spent on the good, get taxed. Earn pitiful interest on a savings account, get taxed. Etc. Etc.

Aside from the "gift" exception (which is why homeless people don't have to pay taxes), I know married people can trade assets freely, plus when someone dies they can leave a pretty decent-sized estate without being taxed (I think the max is around $2 million, but don't quote me on that). Also, services in this country generally don't get taxed, at least not with a sales tax like tangible goods. However, service providers still pay regular income tax (plus Medicare, Social Security....).

This is how I started thinking of some homeless people: service providers. Those that came to mind specifically included homeless street musicians and poets, who I often see pulling in the biggest tips/donations. Of course, if these service providers were running a legit business their tips would be subject to federal income tax (info from the IRS). At the same time, I'm sure plenty of people out there who receive tips don't include them in their taxable income, so it is hard to single out these homeless tip-earners.

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