How the Super Rich Evade Paying Tax to the Government

Posted on July 21, 2018 by

goldAre you among the 1% of Americans who control more than 40 percent of the country’s wealth?  If yes, then you know well that life is full of choices. Do you have a business be it Oil business, manufacturing business or simple businesses such as  west palm beach towing service? Are you super rich out of your business? The US economy has a lot of loopholes that allow the super-rich to evade paying taxes. Documents obtained by the New York Times showed that Donald Trump declared a huge operating loss of$916 million in 1995. This amount was enough to enable them to avoid paying taxes for a period of 18 years. So how best do you keep your money away from the government? Which methods do these guys use to stay on top of the game?

 

The wealthiest Americans afford to avoid paying taxes through two key methods; Either by doing their own financial and tax planning or by paying someone to do it for them. Let’s explore these methods further.

Capital Gain Management

Assets that are held for than a year are considered as long-term capital gains. These assets are taxed at a rate of 15 percent. However, short-term capital gains are taxed at the ordinary income tax. The super-rich classify their monetary streams as capital gains, and in that way, they take advantage of rates falling under the 15 percent bracket. They also use another strategy known as tax loss harvesting, which involves selling off poorly performing investments, at times of their best convenience, and using the losses to offset capital gains.

 

Modification of Income

The super-rich are experts at keeping their taxable income and corresponding applicable tax rates at the lowest rate possible. They incorporate and pay themselves at a reasonable smaller salary and take a higher portion of their income as dividends. Dividend income is taxed at a smaller rate of 15 percent. They also use another method of taking a portion of their compensation as stock, which only gets taxed only when the options are exercised.

 

Tax Deferral

moneyThe mega-rich enjoy the same tax-deferred benefits of retirement programs such as IRAs and 401 Ks same as you do. Due to their wealth, they place themselves in a better position to max it out annually thus taking the full advantage of the taxes limits and advantages allowed by law. They also make use of other tax deferral ways such as stock option path and deferred compensation plans.

 

Borrowing Tactics

Some strategic borrowing tactics, in fact, earn the super-rich money. Because of the leverage of the super-rich, they can borrow money whenever they spot an opportunity.  They purchase a stock at a fixed rate and use those options as collateral to borrow money. They then use this money to make money off other opportunities. To pay the loan, they use those proceeds or hand over the shares and avoid capital gains. Another strategy these guys use is taxes upon death. For those who own vast amounts of estates, they establish irrevocable trust in which the taxpayer no longer owns specific assets.

 

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