If you thought Trump was the only guilty billionaire, more like current millionaire at this point whoâs been caught in paying no income nor corporate tax for years, boy were you wrong.
The loopholes for billionaires havenât been easier. Not all of them are your favorite rocket scientists anymore.
The newly released, possibly illegal yet necessary juicy tax return data gathered by ProPublica is something we shouldâve gotten our sticky fingers on long ago. It leaks Americaâs wealthiest had not been paying their fair share in taxes for years and these are unlikely fellas, (mostly white guys) who were known as honorable and trustworthy.
The disclosures discovered by ProPublica, still under investigation on how they uncovered these confidential filings and reports, made clear that the tax code needs to be rewritten and the security of taxpayer data clearly requires updates ASAP.
While Americans earning paycheck to paycheck have been diligently paying their large disproportionate share of taxes afraid of audit or jail, the top 1% have been splurging on lawyers and accountants to defer, delay and postpone their taxes. The IRS has lost roughly $76b in taxes due to the wealthyâs tricks and are 3x as likely to audit earners making $75k or less.
While the top earners, a couple dozen havenât been paying their fair share for at least 5 years, the top 10% of American earners pay roughly half of their income in U.S. taxes and 70% of it accounts for all income taxes paid in this country.
Your favorite billionaires whoâve been advocating for tax reform, advising Biden on his hiked tax plan for the ultra-wealthy and reform bill have clearly not been practicing what they preach.
First on the list:Â JB
Jeff Bezosâ tech behemoth, Amazon has been found guilty for paying zero in corporate taxes for years hiding earnings in tax shelters and havens overseas. Now heâs guilty of paying none on his own gains and massive share count/ownership in his company.
MB +Â WB
Michael Bloomberg and Warren Buffet whoâve pledged to have the wealthy âpay their fair share in taxesâ and at least one of them in the past had plans for running for President have also disregarded what theyâve said in the past about a fair tax system.
EM
Elon Musk, a seemingly innocent and unexpected contender as an ambitious tech connoisseur and pioneer has also avoided paying federal income taxes in recent years as well.
What an elite club! Not so easy to get into but once admitted, boy there are a lot of things you can avoid!
Ironically, some reporters are raising more questions on PropPublicaâs analysis than on the billionairesâ wrongdoings. The reporting done by ProPublica based on I.R.S documents which showed the wealthiest Americans did not pay their far share in taxes and benefited from tax code loopholes was essential to uncover, yet this raises questions for government services/officials on how a reporter/researchers obtained that confidential proprietary data in the first place.
Yet no doubt whatâs most alarming is that the rich have an easier way of getting around things and paying less than the 99%! At least if you can get around things, you should pay more to do so.
Staggering Wealth Divide in America
Although the U.S. is the wealthiest and arguably the most prosperous, capitalist, innovative democratic society in the world, we got problems too. First off, Americans arenât equal and that explains this dilemma.
To keep it simple, the more you make in W2 earned income from your employer, the more taxes you pay on your income. The higher income tax bracket youâre in, the more you have to give back to society snagging a portion of your hard earned income. No choice.
And for each additional source of income you earn, you then pay and are put in the marginal tax bracket.
The problem is, no one is fooled by this system anymore, especially the wealthier you are. Sure, an executive package of $1m+ is terrific compensation and puts one in the top 1% yet how sustainable and realistic is that?
Not only you are paying at least 40% of your hard earned sweat and tears of your income in taxes, the more you make, the likelier you are living in higher taxed cities such as NYC or San Francisco where the average apartment is half a million paying property taxes which account for at least 20% of the propertyâs cost. Also, layer on a lack of financial literacy which leads you into a deep hole of an inflationary lifestyle, lack of properties, too much funny money and you got yourself bankrupt.
Itâs not about how much you earn/make, itâs how much you keep.
Too much of anything is dangerous and itâs always easier to spend than save.
As a result, the rich have learned this lesson quick while lower income families have been played by the system of stagnant wage growth. Theyâve become beholden to an employer with an income threshold. Pure laziness, lack of effort and education keeps them there.
The rich have discovered that working for someone wonât cut it and the more ways one can supplement their income and find alternative income sources, the better. This leads one to generate more unearned income, income from alternative sources not employer sponsored.
Supplemental income includes portfolio income: dividends, interest, capital gains on securities, unrealized gains (assets that appreciate in value before sold) and passive income: enterprises, LLCs, partnerships, S-Corp(small biz), C-corp (large corporation), real estate and alternative investments (real estate, art, farmland, etc.) that continue to generate cash flow day in and night no physical labor nor time required, only upfront while establishing.
Ideally you want to be paid for your mind/experience not time.
Anyone can create passive income source(s) and it is the best recommendation an advisor can provide to not put yourself in financial jeopardy and keep a roof over your head. In order to truly stay financially afloat in case another recession hits which historically happens every 8â10 years, never rely on 1 income and live below your means.
On top of securing at least 5â10 income sources which can be from your blog to REITS in the market, establishing an emergency savings fund with 6â12 months of emergency expenses is key. Anything is inevitable and you must plan for the worst hope for the best.
The rich have mastered this strategy to a point where they now own 80% of the wealth in this country and have increased it by 40% during this deadly pandemic.
As Warren Buffett proclaims, âif you work for your time, you will work till death.â
Sure, when most are staring out, even the billionaires, you will most likely end up working pay-check to pay-check to fund school bills, pay for movie tickets and learn people skills but once you become an adult, your time becomes more valuable, you realize that the best investment is in yourself and you need to let money work for you not to you so you focus on alternative investments outside of your 9â5 since because a job will rarely make you rich as it offers no flexibility and a pay ceiling. Itâs a great propellant and absolutely nothing wrong with working for someone but when it comes to the whiplash of bonuses to taxes, it can hurt you.
As a result, majority of the richestâ wealth is tied up in their companies and investments. They are sitting on unrealized gains not paying any tax on their assets since they arenât selling anything. Unless you sell a gain on your assets, you immediately avoid paying income tax if its less than a year and capital gains tax if its more than a year. They invest in farmland to NFTs, artwork to real estate, gold and even BitCoin which generates substantial return over time as theyâre obsessed with scarcity, hedge against inflation and consistency keeping things going for a period of time to build momentum and return. A secret plan theyâve adopted in their businesses as well. Consistency is key
How It Works
There are countless ways to avoid paying taxes that are completely legal.
Check out this extensive guide that can help you save thousands or possibly millions depending on how much you owe.You know who will be reading thisâŚ
#1 Charitably Minded
This doesnât sound like a financially smart move to make considering your money isnât directly working for you, yet by helping someone else out, you are benefiting yourself as well. I donate a lump sum of clothes each year to Goodwill and I get a tax break. This is an easy way to save a decent chunk on your tax bill. It varies state to state and what you deduct it on. I suggest speaking to your accountant about the amount you can save. Donations donât have to be lavish. They can be anything that you donât need anymore thatâs in decent condition. It can range from used cars to toys. If you are more generous with your money, becoming a donor and having your money invested in philanthropic causes/funds is an option as well which offers larger tax breaks. The more you give, the more you save. Only in this case.
#2 Expenses
Depreciation is a ubiquitous word tossed around in the financial world. Depreciation is an accounting term that is used on non-cash expenses for intangible or tangible items (assets) that depreciate overtime but still need to be used such as software to furniture.
Depreciation can also mean you deduct your expenses/interest from your income/borrowed money. For example, for my rental property that I purchased at the start of quarantine to rent out, not for myself, you can read all about the process here, I deduct my expenses, same thing like a business, from my income.
Deductible expenses for my rental can include cleaning supplies to a new dishwasher, handy man repairs to a new door-handle. Anything that is considered an expense used to help generate more income can be deducted from your income so it ends up being free of charge!
Those are one of the many perks about working for yourself and running a business. If youâre meeting with a client, choose whatever Madison Ave restaurant you want because itâs all getting deducted. Just make sure to always have a reason, keep the receipts for at least 5 years and be realistic on your justifications. If youâre charging your Cabo family vacation to your business, it probably wonât fly.
No matter how big or small, loosing or earning money, as long as youâre earning income outside of your employer, it can be considered a business.
#3 Debt
A sneaky yet legit way Elon got away with billions in taxes was by deducting interest on his debt to avoid paying federal income tax. Loosing money is good for billionaires since you donât pay tax on your looses, only your gains.
#4 Mix of Both
The report by ProPublica illustrates the various techniques the ultra wealthy use to reduce their tax burden and the most popular strategy the billionaires used was to take advantage of a complex web of loopholes such as tax shelters and havens. These are funds overseas where you stash your money and charge 0 income or corporate tax.
Clearly, thereâs not much rocket science to this. Theyâre all pretty straightforward techniques that millionaires use as well.
Although these guys are hypocrites, if theyâve taught us anything itâs that through unwavering commitment and dedication anything is possible. Most people quit due to lack of patience, not IQ or talent. No wonder theyâve amassed extraordinary gains in their portfolio to companies. They just kept going. The best way to beat out competition is to simply show up overtime and in the market, that means letting your investment work for you. Donât gamble/day trade timing and predict securitiesâ price movements. Focus on real change that is predictable. Use fundamental analysis to find undervalued stocks through passive investing since the markets always go up overtime.
Paycheck Boost
With the massive gains attained in the stock market this past year, not only have the rich benefited from their companies lofty valuations and WFH by owning a substantial percentage/ownership of shares, theyâve also benefited from the massive executive paychecks and packages. 70% of the highest executives from DoorDash to Palantir have paychecks averaging $30m. Sadly, these companies also had the widest wealth gap between executives and employees. Executives made an average 270x more than the typical employee.
Progressive vs Regressive Income Tax
These two types of taxes distinguish why the rich keep getting richer and the poorer keep getting poorer. The transfer of wealth is enormous in this country and has been lead predominantly over the years by the middle to shareholder class. As inflation concerns arise, lower to middle income classes will suffer the most as goods will become more expensive and eat into their salaries, hence the destruction of repressive tax.
Repressive is a type of tax taxed on most consumer goods. From gas to food this standard tax eats into a larger percentage of low-income earners paychecks as the tax applies to any good regardless of income.
Overtime it makes a staggering difference.
On the contrary, progressive tax is where the average tax rate increases with income so high-income earners pay a disproportionate higher share of the tax burden. As income hikes so does tax which helps drive a lower budget deficit for the government as its main contributes are lower govât spending and increase in taxes. Yet with billionaresâ loopholes and no earnings made on earned income, mainly unearned income, the U.S. is having a hard time reducing itâs debt load.
Another reason why the rich donât seem to care nor can help the rest of society.
ProPublica found that people earning between $2 million and $5 million a year paid an average of 27.5%, the highest of any group of taxpayers.
Above $5 million in income, though, tax rates fell: The top .001% of taxpayersâââ1,400 people who reported income above $69 millionâââpaid 23%. And the 25 very richest people paid still less.
Taking a Step Back
When people say America is a united country, Iâm cannot concur. Taxes are meant to support our fellow Americans in need who are living on the poverty line, scared of eviction, cannot afford to put food on the table, have no running water, gas, electricity and basic necessities that the rich take for granted. The governmentâs budget deficit is at its highest point in history nearing $20 trillion due to spending over the years. Covidâs damage on the healthcare system and the emergency purchase of vaccines has only dampened it. Taxes are used to fund schools, improve infrastructure, repair businesses, buildings, have cleaner water, reduce carbon emissions, reduce crime, take a stance on climate change, fund Medicare and Medicaid, Social Security, aid mental illness patients, the homeless and make America America. The U.S. may never be able to lower its deficit to under a billion. At least it can keep pumping money as the U.S. dollar and government debt are seen as the safest investments across the world able to borrow more and more from the Treasury.
When we uncover the top 1% hide their money to avoid paying taxes, spend millions frivolously to hire lawyers and accountants to hide their money and go through loopholes in tax shelters solely for their benefit, I donât know how much these âleadersâ have really improved the world.
Itâs not about being jealous about their wealth, itâs about equality.
Sure, theyâve put millions to work and created incredible businesses that have vastly improved the world but this is the wealthiest country in the world and majority of the wealth isnât distributed evenly. There are still millions on the poverty line while a few dozen are worth more than European countries GDPs combined.
Theyâre all in it for themselves. America wants to be seen as a democracy but when it comes time for April 15th, weâre all alone.
As millions of Americans pay their fair share in taxes by budgeting properly, spending less than they earn, putting in the time to educate themselves on personal finance outside of school and work to keep themselves afloat and support their family, this is more than unfair.
No doubt life is unfair but it should be harder for the rich to get around this system. Those who cannot afford to pay taxes should get a larger tax break. Even if the Bezos of the world did paid their fair share in taxes for years, they would never go bankrupt or in massive debt as millions of Americans fear.
Future Plans
While President Joe Biden, is seeking revenue to finance his spending plans, Warren Buffet has long said that the tax code should hit the rich harder. In a statement to ProPublica, Mr.Buffett said he expected that 99.5 percent of his wealth would go toward taxes and charity upon his death, adding, âI continue to believe that the tax code should be changed substantially.â
Biden wants to raise the top tax rate to 39.6% for people earning $400,000 a year or more in taxable income, estimated to be fewer than 2% of U.S. households. The top tax rate that workers pay on salaries and wages now is 37%.
Biden is proposing to nearly double the tax rate that high-earning Americans pay on profits from stocks and other investments. In addition, under his proposals, inherited capital gains would no longer be tax-free.
Yet that wonât solve the problem since harsher reform on taxes will only leave the rich better off as they never sell their gains.
Using calculations by Forbes magazine, ProPublica noted that the wealth of the 25 richest Americans collectively jumped by $401 billion from 2014 to 2018. They paid $13.6 billion in federal income taxes over those yearsâââequal to just 3.4% of the increase in their wealth.
Much of the gap comes from the use of overseas havens. The government loses between an estimated $40 billion and $120 billion a year from offshore tax evasion. Bidenâs tax plan includes measures to stop corporations from stashing profits in countries with low tax rates. Last weekend, the Group of Seven wealthy democracies, which includes the United States, agreed to support a global minimum corporate tax of at least 15% to deter multinational companies from avoiding taxes by stashing profits in low-rate countries.
Who knows how long this select group of fellas have been avoiding paying their fair share and corrupting the tax system. We cannot control them nor should worry about it.
Instead what we can and should do is take control our own financial future. Legal tax savings systems are in place for everyone. They arenât only made for the top 1% whoâve abused them enough. Jump on it. Theyâre made for you.