16 Ways Rich People Avoid Paying Taxes
One of the greatest scientist, Albert Einstein-said “The Hardest Thing In The World To Understand Is The Income Tax” the rich have very expensive accounting experts, that help them to minimize, just how much money they pay in taxes.
In the last decade we have learned quite a lot about the financial field and this expertise has allowed our companies and personal wealth to grow at an accelerated rate. Note all of this-because you don’t know when this information will come in handy.
Keep in mind, this is not Financial Advice, this is just-what we have seen-the rich use to grow their wealth and we believe it’s valuable for you to know about it. Here are 16 ways rich people avoid paying taxes.
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Way 01:-Make An Investment
The rich don’t sit on cash, unless they need it for something specific. The golden way when it comes to paying taxes is “Reinvested Profit Is Not Taxed”.
If your company was about to make $6 million in profit and before the end of the fiscal year you choose to invest that $6 million back into the business in order to grow it even more, well you don’t have to pay taxes on those $6 million. On this way companies grow quickly.
As the owner of the business, your net worth goes through the roof with little to no tax being paid.
Way 02:-Each Thing You Use Is Owned By A Business
The second golden way of tax optimization is deduct everything or buy-use the necessary things (even personal expenses) on the name of company. This is the big thing- if a business needs anything to function, the money you spend isn’t taxable.
For Example: – If you want to buy a new car-well the company needs the car as well so allow the company to buy it on the company’s dime (money) and you get to use it since you need it to run the business. Now, here are some of the things that rich people deduct.
Deducting Things For That Rich People Avoid Paying Taxes
- Any types of technology, hardware and software like: – laptops, phones and gadgets etc. which are needed to run the business.
- Transportation, hotels and flights cost which are needed for business trips.
- Home and office utilities like: – the internet, health insurance premiums and even going out to eat can be a deductible expense.
So, the more things you can deduct or use the necessary things on the name of company, the less money there is to be taxed.
Way 03:-Shift Somewhere With Less Or No Tax
People often underestimate, just how big of an impact-it will have-if you move to somewhere. Where, you are allowed to keep all of your money. This used to be the way-it was back in the day, you would move to Dubai, Monaco, Cayman Islands or Bahamas as your main residents.
These countries have no income tax, they don’t require you to pay any tax on the money you make but there is a catch it’s usually really expensive to move there, which is why rich people get an unfair advantage in life.
The cost of living in Monaco is incredibly high but when you take everything into account, well you still save more money living there if your taxes are high enough to justify that move.
Way 04:-Deliver It Overseas
This is how Google, Apple and Facebook do it, they set up companies in Ireland because of its tax-friendly environment. These companies own the intellectual property.
The US (United States) Company–needs to pay a licensing fee to the Ireland Company every year to keep developing and selling their products in the US. This created a legit deductible expense for the US Company
Through this scheme, they’re taking money out of the US economy and moving it to Ireland where they end up paying only 1% or even less with even more optimization.
If you live in a low income tax country, you can always set up a Local Company there and invoice your US subsidiary for rendered services, which minimizing the tax burden in the US.
Companies like these Tech Giants, would rather pay a fine than pay their taxes in full. The more you think about it, the more you realize “A Fine Is A Tax For Doing Something Wrong A Tax Is A Fine For Doing Something Right”.
Way 05:-Charitable Donations
The fifth way of taxes “Money Donated To Charity Is Not Taxable” this is why every rich individual-owns a foundation of sorts. In their defense the state has always proven to be a poor manager of money, so instead of giving the state of your money-to do with as it pleases, well you’re better off using a Charitable Foundation to make sure your money actually has a positive impact on your community.
But, where things get interesting is that even these non-taxable foundations have deductible expenses. They need things to function, you could even donate land, vehicles or other assets to a charity-you own and it still counts as a charitable contribution.
Also, as the head of the charity group you can still use the same car you donated on paper.
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Way 06:-Rather Than A Salary They Take Equity
You do this for two reasons.
- Equity might increase in value over time
- Equity isn’t taxable unless you sell it.
This is how Elon Musk got so rich-so quickly, based on the company performance-Elon gets a new minted stock and that’s the thing so many people don’t realize how people become so wealthy.
It’s common to think these folks are sitting on piles of cash but they’re smarter than that and if you want to be as smart as they are, you must read article completely.
Way 07:-Buying Art
Here is something only the rich know, the art trade is the last major unregulated market, when you buy a piece of art-it counts as an expense and if you’ve been following along by now you should know that a good portion of expenses can be deductible.
As the rich know-there are layers to this. Let’s say you earn $2 million this year and you decide to blow it all on a 2 million painting, so since the expense matches the income-there’s zero money left to be taxed. 4 years go by and now that same painting you own is worth $8 million or at least that’s what a professional appraiser told you.
So instead of selling it for profit you decide to donate it to a museum or better yet your own Art Foundation. Now this means you just scored an $8 million tax deductible-assuming you’re still earning $2 million a year, you just saved an additional $6 million in non-taxable income and it’s all legal.
You could even go for another round if you want to-let’s say you decide to sell the painting at $9 million valuation- you earning $7 million in profit on that deal, which normally would be taxed. For the government once again comes to the aid of the super wealthy-if you want to take all the money you made from that sale-all $7 million of it and you buy more art with it.
You don’t have to pay any taxes on the profit you made from that sale. That’s why rich people buy an art and this is the kind of helpful information-for this-people revisit our website and share our article to their love one to make life better.
Way 08:- Taxes Are High Because Of Inefficiencies
Taxes are high because of inefficiencies. In reality everyone wants to pay their fair share, the problem arises in the management of those taxes and the variation in terms of how much one should pay.
You don’t want to pay taxes when your government is not using it to benefit you, this is one of the reasons why the people of Switzerland are actually fine with a high level of taxes they pay because the government takes that money contribution and they do what they’re supposed to do with it.
Education is free and qualitative-hospitals are free and state of the art good, the environment is clean and blossoming with the overall population-quite happy but compare that with the way corrupt governments choose to spend your money.
The corrupt system-it all breaks your spirit because it feels like you’re being played.
Way 09:-Many Nationalities With No Final Residence
Now this is probably the shadiest and most confusing way on this list but people have done this successfully everywhere around the world.
When it comes to paying taxes, you have to pay taxes in your country of residence “your home country” but what happens when you have no longer home country-because, there are plenty of super wealthy individuals that choose not to have a home country despite owning properties all over the world.
When an institutions ask for the proof of address, they provide one from a property they own in Thailand or Bhutan and that’s a different language and overlooked by a government that has no intention of providing any additional information.
Then there are folks that buy a massive yacht and use that as their primary home. If you have more than one nationality then, you can use the benefits of multiple passports. So, this is not advisable but in reality wealthy people done it for their business purpose.
Way 10:-Gift Money Away
Did you know-you can gift things to people and that gift is non- taxable, crazy right there is a $15,000 cap on that gift though. So if the gift is worth less than $15,000, you don’t have to tell the IRS (Internal Revenue Service) about it-because it counts as a non- taxable event.
Now you might be thinking okay, cool-but this is an article-about really rich people and how they optimize to get the most out of it. $15K barely gets you into the Rolex game gift wise.
Well $15,000 might not sound like a lot but-there’s more room to maneuver here, as of 2021 the lifetime gift exemption is capped at $11.7 million in the US, as long as each gift is less than 15K. $11.7 million in tax-free wealth-well that translates to a hell of a lot of Rolex watches.
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Way 11:- Hold It In Privacy Coins
Crypto is changing the game-in terms of wealth transfers and wealth security, the fact you can put a billion dollars on a stick-put it in your pocket and fly to Singapore with it is mind-blowing. With the likes of Bitcoin and Ethereum which are heavily regulated, measures are in place to provide transparency link wallets to individuals and make sure everyone is paying their fair share.
By the way-profits from the sale of crypto are only taxed at 10% in most countries, still giving a better return than some other assets, if you take into account-the industry price appreciation.
Bitcoin is completely legal and it is here to stay but there’s more to it. The rise of Block Chain has given way to a new breed of technological currencies called privacy coins, so these can be exchanged, stored and transferred-completely anonymously.
Privacy coins are not illegal but their legality does remain subject to each jurisdiction. The belief here is that once you make your money legal, you should be allowed to transact it-without other parties, overlooking your transactions.
Way 12:-Exchange The Assets With Quick Cash
Here’s why most rich people are super wealthy but cash poor, in order to take cash out of your businesses you need to pay taxes on that money, so rich people choose to never take that money out. They just leave it as stocks or assets.
But there are situations when you need some kind of cash-that’s where the relationship with your bank comes into play. Rich people walk into banks and say “look at how much stuff I own the cars, the assets, the stocks. I’m good for the money if it comes to it. So, give me a loan”
Banks look at that portfolio and they give wealthy individual’s access to Quick Cash, anytime they want-now since this is technically a loan-they’re taking out. This isn’t their money so they’re not required to pay any tax-they just have to give it back, if all of it happens through a company and not from an individual perspective-well this mutually beneficial relationship can go on for a lifetimes.
Way 13:-Filing For Bankruptcy
Filing for bankruptcy is expensive, tiresome and complicated unless you’re super rich and you know how to get over it. So, here’s how the process works-let’s say you’re a pretty decent lawyer making $250,000 a year, you own a $1 million home and you manage to save an additional $1 million, so you’re looking to go into business and you decide to buy a $10 million office building because it’ll make you a lot of money.
You go to a bank, you put your $1 million down, you get a $9 million loan and you buy the office building. one year later a pandemic hits and all of your tenants leave, you still owe that bank $9 million, so to make matters worse-the building you bought is now worth only $5 million because nobody wants to buy an office building right now.
But, since the office building is owned through a company-our lawyer can now file for bankruptcy-although they will take the office building away from him and they’ll have a really hard time ever working with that bank ever again.
Bankruptcy laws prevent the bank from taking away the house or siphoning off his wages. This is the difference between being poor and being broke. Rich people can be broke, meaning that on paper-their net worth might be zero or even in the negatives but they’ll never be poor.
Also if you don’t need the bank pay it all out in cash? The financial loss would still count as a tax deductible-meaning that for the many years to come you won’t need to pay taxes on your income until you catch up to the amount of money you lost.
Way 14:- Make Your Yacht As Your Second Home
Here is an interesting observation when it comes to taxes. Governments love homeowners and despise the super wealthy who like to splurge. They really want to tax these showoffs.
So what do rich people do to combat this? Well they claim-their Yachts as secondary homes to get better taxation rates, at the end of the day, it is true-they’re using it as a holiday home when they’re traveling.
As long as the boat has sleeping, cooking and toilet facilities, well the IRS (Internal Revenue Service) treats that boat as a second home. You know motor homes can be used the very same way but how many super rich people do you know buying motor homes these days.
Way 15:- Utilize A Trust To Avoid Paying Estate Tax
So among the rich, there is a funny saying that goes like this “A Person Does Not Know How Much They Have To Be Thankful For Until They Have To Pay Taxes On It” so unless you’re rich you might not be aware of this, if you’re rich and you die, the state taxes up to 45% of the wealth you want to pass down to your children-this is called an Estate Tax.
By the way here is some important information. The US qualifies you as Rich if you’re worth more than $11.7 million. For everyone worth less than that there isn’t an estate tax or it’s considerably lower.
11.7 million Might sound like a lot of money to the average person but we’re living in the realm of billionaires and we’re likely going to have our first Trillionaire in this lifetime. With inflation the way it’s going right now everyone will be a millionaire eventually.
So the way rich people are structuring their wealth in order to keep the state from taking it away is by using trusts. So if you put things into a trust, provided certain conditions are met-they no longer belong to you. So it’s not yours to pass on to your children.
Once that property is held in trust-it outside of anyone’s estate for inheritance tax purposes. It also protects you from putting all of your wealth under the name of your child because they could easily blow through it if they decided to so the control remains with you while you’re alive.
You could also set up smart contract like rules, where your children get gradual access to the Assets in that trust under certain conditions like when they turn 25 or graduate from school.
Way 16:- Depreciating Assets On Paper To Outweigh The Cash Income
Accounting is the language of money and if you want to be rich you better learn how to speak it or at least understand it. In simple terms depreciation is a deduction that enables a business to write off the cost of the investment it buys, be it a car, a machine so on.
It’s spread out for the life of the investment-the reason behind spreading deductions for the cost of property is to enable businesses to be in a position to replace the property at the end of its life.
Now let’s say you buy a factory for $10 million and you intend to use it to make those ugly looking face shields for the next 10 years. From an accounting perspective every year the value of the factory will be depreciating by $1 million, if you make less than $1 million a year-from selling your face shields, well there’s no profit left to tax.
Equipment, vehicles and even offices can be depreciated from an accounting perspective-allowing you to keep paying less and less tax.
If people only knew how to optimize their money their businesses would grow at much faster rates. Allowing them to hire more people and create better products. You are under no obligation to pay more taxes than what’s legally required.
Taxation was meant to help the poor but since everything is privatized and optimized for profit it doesn’t work the way it was intended to.
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- Now New Year 2025 is coming. We have got mind-blowing technology available to us, why can’t we choose where our money goes through our private devices (phone, computer).
- Where does the bulk of that money go- that you pay, why can’t you choose to deploy your resources to the school in your neighborhood or fix the roads in your own city.
- This is why we believe in Block Chain-which have a massive impact on society, it removes the need for middlemen to make decisions on your behalf. There can be a smart contract written where a small percentage of your income gets automatically attributed to the causes you care about with full transparency and control.
- How much is your government wasting, how many people are employed only to push papers from one office to another, we need leaders and transparent technology-more than we need politicians. The way we pay our taxes will change this decade and we can’t wait for the system to be fully optimized.
