A basic one is negative gearing + trusts + cheap loans.
Negative gearing allows you to deduct/combine different income streams together to reduce your taxable income, and hence tax liability.
Traditionally used by middle/upper middle class to deduct mortgage interest payments and reduce their taxable income.
Rich(er) people combine this with trusts to distribute income/expenses among trust beneficiaries for something more tax advantageous. Usually this is someone like a spouse, child, or extended family member.
Add on the fact that rich people get cheaper loans, which often makes it cheaper to finance day to day life with loans, and only draw down (ie realise capital gains) after shuffling around incomes/expenses for a year.
Tax loopholes are basically legal ways to shift the timing and benefiary of income/expenses. There’s a bunch of other ones, like
choice of depreciation calculation
purchasing things on behalf of a “trust” or “company”
getting paid in low tax jurisdictions
moving money into tax advantageous retirement accounts
None of that explains anything for wealth levels we’re talking about. Negative gearing implies a loss elsewhere, trusts max out at the same rate as all other inheritance they just avoid probate, retirement maxes out way earlier than what they have.
Nope, they definitely do. The specific assets and schemes differ across wealth levels and also across time as laws change, but the general principles of finding and exploiting loopholes remain the same.
The middle class negatively gears property despite the property gaining in capital terms. The ultra wealthy negatively gears sports teams despite the team gaining in capital terms.
The middle class deducts fancy electronics and cars as “hobbies”. The ultra wealthy deducts entire luxury hotels and horse racing clubs as “hobbies”.
The middle class stuffs income into retirement accounts. The ultra wealthy stuffs assets, which are way more fungible in value, into retirement accounts.
Ok, what tax loopholes?
A basic one is negative gearing + trusts + cheap loans.
Negative gearing allows you to deduct/combine different income streams together to reduce your taxable income, and hence tax liability.
Traditionally used by middle/upper middle class to deduct mortgage interest payments and reduce their taxable income.
Rich(er) people combine this with trusts to distribute income/expenses among trust beneficiaries for something more tax advantageous. Usually this is someone like a spouse, child, or extended family member.
Add on the fact that rich people get cheaper loans, which often makes it cheaper to finance day to day life with loans, and only draw down (ie realise capital gains) after shuffling around incomes/expenses for a year.
Tax loopholes are basically legal ways to shift the timing and benefiary of income/expenses. There’s a bunch of other ones, like
None of that explains anything for wealth levels we’re talking about. Negative gearing implies a loss elsewhere, trusts max out at the same rate as all other inheritance they just avoid probate, retirement maxes out way earlier than what they have.
Nope, they definitely do. The specific assets and schemes differ across wealth levels and also across time as laws change, but the general principles of finding and exploiting loopholes remain the same.
The middle class negatively gears property despite the property gaining in capital terms. The ultra wealthy negatively gears sports teams despite the team gaining in capital terms.
The middle class deducts fancy electronics and cars as “hobbies”. The ultra wealthy deducts entire luxury hotels and horse racing clubs as “hobbies”.
The middle class stuffs income into retirement accounts. The ultra wealthy stuffs assets, which are way more fungible in value, into retirement accounts.
The Secret IRS Files Archives — ProPublica - https://www.propublica.org/series/the-secret-irs-files
Ten Ways Billionaires Avoid Taxes on an Epic Scale — ProPublica - https://www.propublica.org/article/billionaires-tax-avoidance-techniques-irs-files
More Than Half of America’s 100 Richest People Exploit Special Trusts to Avoid Estate Taxes — ProPublica - https://www.propublica.org/article/more-than-half-of-americas-100-richest-people-exploit-special-trusts-to-avoid-estate-taxes