It is no secret that the modern income tax system discourages many individuals from upward mobility. The more income you generate, the more opportunities the government has to tax you. Whether it is on your business, salary, real estate, purchases, or gifts, the Internal Revenue Service (IRS) will always want a hefty cut. Failure to pay can land one in federal prison, as Wesley Snipes learned when he failed to file and received a sentence three years in prison.
Even Rapper Cardi B expressed bewilderment on social media regarding her state’s aggressive taxing of her income just two years ago. About “40% of her income”, which is estimated to be around $8 million, was handed over to the federal government.
When even celebrities have to bend to the government’s will, the odds do not look good for the average man; however, it is not the rich we need to turn to for guidance but rather the uber-rich.
Firstly, it is essential to mention that the number of auditors, government employees that report and calculate tax infractions that are available to the IRS have decreased. According to the Atlantic, the current presidential administration has done everything it can to cut funding for the IRS, which has forced it to cut back staff to less than 10,000. So at this time. The IRS does not have the policing power it once did. That is, however, not to say that they still aren’t actively pursuing cases involving fraud. The Atlantic also reports that the IRS is incentivized to go after those receiving money from welfare programs, with audits targeted on those making less than $20,000 a year.
With an executive and legislative branch catering towards them, it is no shock that the uber-rich have it much more comfortable than the rest of us. Though there are times when the political climate flips against there favor, so they have had to adapt and learn new techniques of tax avoidance. Philanthropy, for example, allows them to deduct “60 percent of their gross income,” according to CNBC. Donating to any non-profit will enable them to receive tax deductions that seem to increase yearly.
As mentioned in a previous article, many forms of business structures like Limited Liability Companies (LLC) can act as a form of tax shelter. It is not uncommon for the business’ only function to be the handling and investment of one’s assets.
According to CNBC, and, in regards to assets, stocks and options are nowhere close to being as nearly taxed like other forms of wealth generation. The longer you hold these stocks, the less they will be taxed when you cash them out. Whenever the uber-rich lose a substantive amount on one asset, it counts as a way for them to minimize their gains, thus also minimizing what they may owe when filing taxes.
All and all, many of these strategies can be replicated, albeit to a lesser degree.