How To Avoid Paying Taxes – How much of the world’s wealth do you think is hidden offshore? Take a guess! Billions of dollars? How about hundreds of billions of dollars? The number is beyond most people’s imagination. Economists estimate that number to be closer to at least 10 percent of the global GDP. As of 2021, the global GDP is about 93 trillion dollars. This means around 9.3 trillion dollars is hidden offshore. That’s almost 50 percent of the entire GDP of the United States, the wealthiest country in history!
But the main question is, why would they hide their money? I mean, don’t they want to enjoy some of that wealth. Don’t they want to fly private, drive the most luxurious cars or buy the most expensive mansions, or at least brag about how much money they have? Yes, but no one wants to pay taxes. Yes, of course, you get some benefits from the government such as roads, bridges, schools but so does everyone else.
The only reason you are making so much money is because of your hard work and talent, so why should you share that money with the government. When you barely make enough money to survive, you pay almost no taxes. Your first 10K dollars is taxed at just 10 percent, but any money you make above half a million dollars is taxed at 37 percent. On top of that, if you consider states taxes, you can easily end up paying as much as half of your income in taxes.
So why work hard to make money when at least 50 percent of it goes to the state? Shouldn’t there be a way to avoid these taxes? Otherwise, it doesn’t make sense to work harder! Since the beginning of time, rich people have made sure to find loopholes within the tax code, and when they didn’t find one, they created one. And in this article, we are going to take a look at 5 of them. You are about to discover how the elites of the society pay almost nothing in taxes while making hundreds of billions of dollars.
How To Avoid Paying Taxes For The Rich
1. Tax Heavens
Let’s say you start up a company (in the USA), and everything is just perfect. Just in your first year, you have made an incredible profit of a hundred million dollars! Congratulations! Before you celebrate your success!
IRS is going to knock on your door and take 21 million dollars out of it because the corporate tax in the United States is 21 percent, which soon might be 28 percent! That’s a lot of money! Why would you pay so much to the government when you made that money with your blood and sweat, and we didn’t include state taxes.
Even if you decide to go abroad and sell your product elsewhere (Europe), where the tax rate is lower, Uncle Sam will still come after you for its share of your profit on top of the taxes you will be paying in that country. Whether that’s fair or unfair, depends on whom you are asking. You can write down what do you think! However, things are not as bad as they seem.
There is a way for you to avoid those taxes legally. Instead of declaring 100 million dollars in profit, be smart about it! How about you lower your profit to just 30 million dollars and now suddenly you only have to pay only 6.3 Million dollars (21% out of 30M) instead of 21 million dollars. Get on a plane and travel to the little island of Bermuda and set up a new company there. It’s easy, fast and cheap because you won’t have anything except an address to a small office in the middle of nowhere!
Then simply give all of your patents, trademarks, and intellectual property of any kind from your real company that is in the united states to your new company in Bermuda. So when uncle sam comes to collect 21 million dollars out of your hundred million dollars! You say sorry! We have licensed this technology from this company in Bermuda, so we have to pay 70 million dollars to them.
So we are just left with 30 million dollars, so now you only have to pay 6.3 million dollars. Your 70 million dollars in Bermuda are not taxed because the corporate tax rate in Bermuda is 0 percent. Congrats! You have saved 14.7 million dollars. But how about the profit you earned in Europe? It will be taxed, right? You set up a new company in Ireland that’s going to make another hundred million dollars. Instead of paying 12.5 percent corporate tax in Ireland and the remaining 8.5 percent to the United States.
Because Uncle Sam will come after you no matter where are you! You transfer that hundred million dollars to a new company you set up in the Netherlands at 0 percent taxes through a little tax loop. Your Dutch (Netherlands) company immediately sends it back to your first Irish company that’s simply a subsidiary of your Bermuda company, So the money ends up back in Bermuda, where the tax rate is 0 percent.
Congrats! You have saved millions of dollars! That’s how Apple, Google, and many other giant corporations avoid taxes! It might not make a huge difference when you are earning millions of dollars, but when you are earning billions of dollars, saving even a billion dollars would make a huge difference. When politicians increase or decrease the corporate tax rate, it doesn’t really make a big difference because why pay even a 10 percent tax rate in the united states when you can pay 0 taxes in Bermuda.
2. Expanding Market Share
Having billions of dollars offshore is great, but What is the point if you cant use it! If you bring it back to the US, you still have to pay taxes on it, which makes all that scheme useless. That’s why corporations started taking a different approach. The largest US companies such as Boeing, Netflix, Amazon, GM either pay 0 taxes or a tiny percentage. From 2008 to 2017, Boeing paid only 8.4 percent on 54.7 billion dollars of profit. In 2018, Netflix reported 845 million dollars in profit but paid absolutely no taxes at all.
The company can make a big investment and dramatically expand and gain market share. In fact, they might have to borrow money and, at the end of the year, report a loss, and when you are reporting a loss, you are not only not paying any taxes for that year, but you can forward it to future years.
So if you are going to make a significant profit next year, because last year you gained such a huge market share, you still can deduct your last year’s loss and significantly reduce your tax bill, if not avoid it at all. And it’s a common practice among the companies. So the company might not be making any profit. In fact, some companies keep on reporting losses year after year. Uber has a market cap of over 50 billion dollars, and it’s making revenue of a few billion dollars, but the company has not reported even a penny of profit. In other words, it hasn’t paid a single dime in taxes yet. Even if Uber’s valuation crosses 100 billion dollars, it still doesn’t have to pay taxes unless it reports a profit.
In 2020, Jeff Bezos made 75 billion dollars and paid zero taxes on that. Because his wealth isn’t liquid and consists entirely of amazon shares, and he only has to pay taxes if he liquidates his shares, but as long as he doesn’t, he doesn’t have to pay taxes. But what is the point of all of that wealth if you can’t use it? This wealth is just on paper! Well, it’s one way to think about it, but from an opposite point of view, what would you do with 75 billion dollars in cash.
As long as your company keeps growing, your wealth keeps growing. And if you want to drive a Ferrari, fly a private jet, or travel across the world and stay in the most expensive hotels. Just use the company’s money and then deduct it as a business expense and lower your tax bill even further.
Art is great, but rich people have turned it into a method to avoid taxes. You probably have seen painting sold for hundreds of millions of dollars. Take this painting (Salvator Mundi). It’s an amazing painting but let’s be honest, it doesn’t worth 450 million dollars. So here is the real reason why art is so expensive. Let’s say you are a multi-millionaire.
You buy a piece of art from the primary market for a million dollars and hang it on the wall of your office. After 5 years, you make 22 million dollars. You will have to pay a lot of taxes on that. However, here is how you can avoid that. Remember the piece of art you have purchased for a million dollars.
Surprisingly now it is worth 7 million dollars. Its value has increased over the last 5 years, according to your “experts.” Since you are such a generous guy, you donate that piece of art to your favorite museum, and you deduct 7 million dollars as a charitable deduction from your 22 million dollars income. Now you have to pay taxes on only 15 million dollars.
Congrats! You have saved millions of dollars in taxes. The media spreads the news about what a generous person you are since you have donated a piece of art that costs 7 million dollars. The museum puts your name right beside the painting. That’s how the elite of the society use art to avoid taxes and boost their image.
5. Section 1031 Exchange
This is rich people’s favorite tool to avoid taxes. It’s even difficult to believe that such a loophole exists. Let’s say you want to sell your house and buy a bigger house. In the last 10 years, the value of your property has risen dramatically, so you are going to sell it at a huge profit.
Ideally, you should be paying a capital gain tax on it, but if you use that money to buy another property within the next 45 days, you don’t have to pay a dime in taxes. It’s not unique to real estate, but it applies to other assets such as stocks. But it’s a little complicated with stocks.
That’s why you lower and accountants to make sure you are eligible to such tax differ. If you dig deep into the tax code, you will find out that there are multiple ways to avoid taxes. Most of the taxes are paid by High-income earners like doctors, lowers, engineers, and so on, but the real rich pay the lowest percentage possible.
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