How do rich people avoid taxes? Wealthy Americans skirt $160 billion a year in t...
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How do rich people avoid taxes? Wealthy Americans skirt $160 billion a year in tax payment
More than $160 billion in tax revenue is lost every year because the top 1% finds ways to avoid paying “their fair share,” according to academic research cited by the Treasury Department.
What tactics, though, do uber-wealthy people use to avoid the taxes?
It turns out that not only can they afford tax attorneys, accountants, and estate planners, but there are also some tax benefits that require lots of money to even access. We’ll shed light on some of those strategies available only to the extremely rich.
“As long as it’s done legitimately and there’s no fraud, I’m okay with it,” said Ed Smith, senior tax and estate planner at Janney Montgomery Scott.
Tips from rich people on how to save: These are the tax strategies used by uber rich Americans
Important info: Are you ready to file your taxes? Here's everything you need to know to file taxes in 2023.
How much do rich people avoid in taxes?
According to U.S. Treasury estimates, the top 1% of wealthy people underpay their taxes by $163 billion annually.
How the super-rich avoid paying taxes
Foundations
Gifting
Family offices
Investments
Moving residency
1. Foundations: Some begin with as little as $250,000, but a more feasible amount begins in the millions.
Immediate income tax deduction of up to 30% of adjusted gross income (AGI) for your contribution but only distribute about 5% each year for charitable purposes. Because that 5% is calculated off the previous year’s assets, the first year requires no distribution.
Avoid high capital gains tax and grow money tax efficiently. You can deduct the full fair-market value of the stock you contribute and not pay capital gains tax. If the foundation sells, it only pays 1.39% excise tax on the capital gains.
Example: By investing $250,000 in a private foundation each year for five years, earning 8% annually, yields about $1.43 million after excise taxes and minimum annual distributions of 5% to charitable activities. Contrast this with $1.38 million had the money been invested in a taxable account and paid capital gains taxes along the way.
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