I don’t make the rules. I just try to play by them. And the rules tend to favor those who have wealth rather than those who are working hard to obtain it.
We’ve seen how an early retiree can pay no income tax, even with a multimillion dollar portfolio funding their post-work lifestyle. It’s how much you have; it’s how much taxable income you have, and that can be minimized in any number of ways.
To hedge against raising tax rates, it can make sense to take a few plays from the ultra-wealthy playbook. Here are the top tricks the rich use to pay less in taxes.
So for high earners, depreciation recapture does provide a genuine tax benefit. Not only do you get to delay paying the taxes, but when you pay them, you pay them at a lower rate.
In capitalism, you put your money (capital) to work for you. Then you get paid for what your labor earns AND for what your capital earns. This is paid to you in interest, dividends, and appreciation of your assets.
Another tax-saving tactic occasionally employed by the wealthy is to borrow money instead of earning it or getting it from selling assets. The problem with this tactic is that it usually involves paying interest.
Another tax break the rich take advantage of is to split their income into salary and distributions. By forming an LLC or a corporation and making an S election, the business is taxed as an “S Corp.”
When you own a business you can hire others. Since employees, on average, are not paid what they are worth, at least in the long-term (or the firm would go bankrupt), the business owner benefits from their labor as well.