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.

Homelessness and taxes

Jim over at Blueprint for Financial Prosperity had an interesting post recently on homelessness and giving money to panhandlers. I find this is always a good subject for discussion in the college town where I live, where you can almost always see panhandlers on our main street. My policy is not to give money directly to panhandlers.

The post referenced a local tv investigation on one panhandler in particular, which "exposed" that she in fact went home to her family in a house each night. I'm not completely sure how I feel about the tv piece, though I was interested to see the reporter estimate the young woman could earn about $26,000 tax-free each year. I did a little checking with the IRS on gift taxes and saw that the reporter was correct: panhandlers don't have to pay any federal income taxes from the "gifts" they receive from strangers, according to my read. While I'm not sure panhandlers focus on the tax benefits of their "jobs," I think they might just take the cake for legally avoided all income taxes.