4 Ways the Rich Minimize Their Taxes

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#57 – There are various articles on the internet claiming that the rich are “dodging” or “avoiding” taxes.

But are they?

Believe it or not, but a lot of tax-saving strategies used by them are completely legal. They just know how to leverage the different tax codes to their advantage.

In this episode, Jeremy Keil discusses some of these strategies. Join him as he explains how these strategies work, why they are legit, and how you, too, can benefit from them. Remember, we are strongly against lying, cheating, stealing, or illegally avoiding tax in any way!

Jeremy discusses:

  • 4 ways the rich manage to minimize their taxes (while still paying their fair share)
  • Underrated tax deductions you might not know about
  • Why you don’t need to have a lot of wealth to emulate the tax savings by the rich
  • And more

4 Ways the Rich Minimize Their Taxes

1) Lower Taxes on Dividends and Capital Gains

Did you know that the tax rates are often lower on dividends and capital gains compared to earnings from salaries?

This might lead you to think that it’s not fair for the workers to pay more in taxes than the rich owners who save in capital gains and dividends.

However, most people miss one key aspect:

When companies make money, they pay tax on their profits (approx. 21% currently). So, the dividends are paid using after-tax dollars. Then, these dividends and capital gains are taxed again at an individual level (approx. 15-20% for rich people).

In total, those dividends end up being taxed around 35-40%!

On the other hand, salaries are considered to be an expense for the company. So, they are not subject to corporate taxes and are only taxed at an individual level.

As a result, the rich (or the companies who send out dividends) are actually paying higher taxes on dividends and capital gain income compared to taxes on salaries.

This is why using capital gains and dividends to minimize your personal taxes is a completely legit tax-saving strategy!.

2) Tax-Savings on Debt

The rich often borrow money to invest, with the resulting debt being completely tax-free.

A lot of people are against this. They say it’s not fair for someone to see their stock or company grow in value, and then borrow against it tax-free. But ask yourself: would you be fine with paying tax on your mortgage loan? Of course not!

Then why should the rich be taxed on their debt? Really, what’s the difference between taking a loan against the growth in one’s stock value, or doing a ‘cash-out refinance’ on the growth in your home value?

Remember, the rich save a lot of money through tax-savings on debt, and so can you!

3) Charitable Tax Deductions

The more money you give away, the more you save on taxes through charitable tax deductions.

The rich only save more using this strategy because they can afford to give more money away. This doesn’t mean that you can’t take advantage of charitable tax deductions too!

For 2021, you can put $300 on your tax returns as a deduction, if you’re single (and $600 for married filing jointly), without even ‘itemizing’ your tax deductions.

In addition to this, you can also make qualified charitable distributions once you turn 70 1/2. Shortly thereafter, on turning 72, you’re required to withdraw the required minimum distributions from your IRA. If you directly transfer this money from your IRA to a qualifying charity, you can avoid paying tax on that money!

If you’re already planning to give away money to your favorite charities during retirement, then you might as well earn some tax-savings on them.

4) Trust Funds

Now, this fourth strategy might seem to be a little less fair compared to the previous ones.

There are many different types of trust funds used by the rich to minimize taxes. For example, Dynasty Trusts, Grantor Retained Trusts, etc.

Some of these trusts are structured in a way that makes them accessible only to the rich.

I believe that in this case, the loopholes in tax codes require some changes so that it’s not biased towards the rich.

Regardless, it’s still a legit strategy, which is why it’s included in this list and why many successful families make use of the strategy.

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Make sure you check out the resources below!

If you have any questions regarding your retirement, investment, or tax planning, feel free to contact us!

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Keil Financial Partners does not provide any tax advice. No information or results from the links should be interpreted as tax advice. Please seek guidance from a qualified tax professional for any and all tax-related matters.

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