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Nathan Bomey explained the tax avoidance strategies of the super-rich in an article in USA Today.
Tax evasion is illegal but tax avoidance is not. Clever accountants can find loopholes and strategies to reduce the taxes of their clients.
It is far better to be an investor than to have a salary.
Wealthy Americans are the largest source of underreported income, according to IRS data analyzed by researchers. The top 1% of American taxpayers account for about 34% of misreported income, according to a study published in the National Tax Journal.
Many wealthy Americans deploy complex, arcane but wholly legal strategies to minimize their tax obligations. Some use fairly straightforward strategies that allow them to minimize their taxes under the tax code…
It’s much harder to avoid taxes on your paycheck than on your investments.
In general, the federal government taxes regular wages at higher rates than investment income. The long-term capital gains tax rate maxes out at 20%, and the highest income tax rate is 37%.
In other words, if you make a salary of $1 million, the government keeps $370,000. If you make $1 million on stocks or similar investments, the government keeps $200,000.
Taxes on assets such as stocks and real estate investments aren’t owed until they are sold. That helps people such as Jeff Bezos, the Amazon CEO, founder and richest person in the world, grow their wealth rapidly while avoiding a huge tax bill. Then they can be strategic about when they sell.
Very wealthy people have lobbyists. They make large campaign contributions to key members of Congress, who protect the interests of their donors.
It is not fair, and Trump’s tax returns should make more people aware of the need for genuine tax reform, not the kind of sham tax plan passed by Trump and Mitch McConnell to benefit corporations and the wealthy.