7 Ways the Rich Pay Less in Taxes (and You Can Too)

taxes

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.

Oftentimes efforts to tax the ultra-wealthy end up hurting those who may not consider themselves affluent such as Physicians and small business owners. To hedge against raising tax rates, it can make sense to take a few plays from the ultra-wealthy playbook.

Structured properly, some real estate deals allow for more depreciation than the property even generates in income, basically sheltering all of the property’s income from taxation.

Depreciation

Capitalism

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.

Loans

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.

Retirement Accounts

The wealthy often sock money away into tax-protected accounts like Roth IRAs, 401(k)s/profit-sharing plans, defined benefit/cash balance plans, 529s, and health savings accounts.

Own Businesses

Wealthy people are much more likely to own businesses than the poor. Businesses generate wealth. Not only do they produce income, but if managed well, they become more valuable over time.

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