Thursday, September 24, 2009

Is Tax Planning Illegal or Unpatriotic?

I often get the comment "Isn't tax planning illegal, or at the least unpatriotic?"  When I get this comment I love to quote the following case:  Gregory v. Helvering, 293 U.S. 465 (1935). In that case, famed Supreme Court Justice Learned Hand was quoted as saying:

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

In fact, Congress establishes tax laws for the primary purpose of motivating our behavior.  We get reduced capital gains tax rates to encourage us to invest.  We get a deduction for home mortgage interest to encourage us to buy real estate.  We get exemptions for children to encourage us to have families.  The list is long and goes on and on.  When we are taking advantage of a tax break, we are doing what Congress is motivating us to do through the tax code. 

So, go ahead and do some tax planning and make Congress proud.

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