Viewing Question: How do the rich avoid paying all their taxes?

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  1. The real answer is that they don’t actually avoid paying taxes. A lot of tax planning is about minimizing them, or postponing them.

    A lot of the ways the wealthy increase their wealth don’t necessarily become income. For example, if you buy a stock, or a piece of art and in triples in value, you don’t pay any taxes on the appreciation until you sell it. So, if you own a million dollars of stock and it increases to 5 million, you’re 4 million dollars richer, but there’s no tax until you sell the stock. Even then, the tax you pay is capital gains which is significantly lower than income tax.

    Another way to minimize income is to counter it with depreciation. For instance if you have a rental property, you can depreciate the property to offset some of your rental income. This lowers your taxable income, and then when you sell the property in the future, you again pay capital gains on the increase of the value of the building including the depreciation. This allows the owners to defer their taxes (up to the initial purchase price of the building) for many, many years.

    Techniques like these don’t eliminate the taxes wealthy pay. However, they do allow wealthy people to defer paying taxes for a very long time, potentially for their entire life, and with proper estate planning, potentially for generations.

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