How do millionaires legally avoid taxes?

Have you ever wondered how millionaires or famous people pay taxes and why these rich people can pay taxes at a lower rate than ordinary people? ACU PAY will give you 5 wide examples that millionaires use to avoid or deduct tax legally.

How much do millionaires have to pay tax?

According to ProPublica, the world’s top 25 billionaires’ tax information was revealed to have an unbelievably low tax rate, even though their companies had a huge increase in assets between 2014 and 2018. 

Starting with Jeff Bezos, a billionaire who owns Amazon, his revenue between 2014 and 2018 increased by $99 billion, but the actual tax payment is at 0.98 % of the increased income. In addition, in 2019 and 2020, according to the Insight on Taxation and Economic Policy, Amazon paid taxes of 162 million dollars and 1.8 billion dollars respectively. It seems like a lot, but if it’s a percentage, Amazon only pays 1.2% and 9.4% of the tax due to its large tax deduction that does not have to be paid at the full rate of 21%.

As for Elon Musk, owner of Tesla, SpaceX, and Twitter from 2014 to 2018, Musk had an additional 13 billion dollars in assets but he paid only 3.27% of taxes on assets that increased or equal to 455 million dollars.

Although in 2021, Elon Musk proudly announced on Twitter that he had paid a total of 11 billion dollars in taxes that year which was more than any other American people, according to the Bloomberg Billionaires Index, Musk’s wealth increased by more than 121 billion dollars in 2021, but he only paid 9.09 % of the increased wealth.

The legal means of tax evasion used by rich people

1. Contribution to a foundation

The foundation is a tool used by rich people to reduce taxes while supporting charity activities. By creating a foundation, they can donate property or money to the foundation to reduce their income that they have to pay for tax. The foundation also has additional tax benefits, including deductions from charitable donations and the ability to plan for property management to reduce taxes. Donations through the foundation allow billionaires to allocate their resources by doing charity activities while reducing their tax burden.

2. Transfer of assets

The transfer of property is another strategy used by billionaires to legally reduce the burden of taxes. By transferring property or money to an individual or organization, billionaires can reduce their overall wealth, which will reduce their taxes on land. Gift tax exemptions and amounts of money provide additional opportunities to reduce tax burdens while facilitating the transmission of wealth from generation to generation. Because of this gift-giving strategy, it allows the billionaire to make financial plans and save substantial tax.

3. A family office

Family Office is a company founded with at least 100 million dollars in capital to set up a family office to efficiently manage and improve the money management of billionaires, including general daily care such as reservations, private assistance, charity work, and tax planning.

By centralizing their financial activities and managing by themselves, the billionaires have better control over their tax strategies, reducing tax burdens through smart structuring, asset allocation, and effective real estate planning.

In addition to setting up a family office, businessmen with large families need a ‘Family Charter ‘ to establish mutual agreements among family members.

An example of a large business family in Thailand where the family charter was established is the Chirathivat family, which started in 1997, and took four years to complete. This charter allows smooth management of affiliates and is passed on to generations of heirs.

4. Invetsment

Strategic investment plays an important role in the tax planning of billionaires by investing in assets with high growth potential that allow them to take advantage of this tax advantage and generate huge returns. Investing in stocks, real estate or mutual funds increases the chances of capital gains and possible tax benefits. By making smart investment decisions by billionaires, they can create long-term wealth while minimizing their overall tax burden.

5. Change one’s residence

Due to high taxes in the United States, American billionaires move to low-tax cities or countries. Especially Puerto Rico, where the peculiarity is that Americans who move here can live without changing their nationality. That is, they can retain their American citizenship and also avoid paying taxes on stock sales profits, including profits from U.S.-based capital to the U.S. federal government, and does not have to pay interest and dividends from Puerto Rico.

In addition, in one of the world’s most expensive tax payment countries, Norway in 2022, after the Norwegian government decided to raise wealth taxes or rich taxes, more than 30 Norwegian billionaires moved out of the country. They moved to lower-tax countries instead.

You can see that billionaires have legal ways to help reduce hundreds of billions of dollars in tax burden whether building foundations, giving gifts, using family offices, investing, and relocating permanently. It’s no wonder why billionaires can manage their assets and reduce full-unit taxes.

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