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There is a saying that the wealthy has to pay more tax.
It is really true?
It’s not necessary because a tax code has some kind of loopholes that makes rich people pay lower income tax. The post is about finding the tax-saving strategies used by wealthy people to limit down the taxable income.
- Higher equity exposure
Equity investments are a long-time tested way of generating long-term returns. Well, it is because of the huge difference present between the tax treatment of capital gains and ordinary income. The benefit of this method is that tax rates are a bit lower on capital gains.
- Defined-benefit, 401K combo plans
There are retirement plans meant for offering modest contribution limits. Thus, a combination of a defined contribution plan and a defined benefit plan is a way to help business owners contributing to their retirement plan.
- Integrating a business
Employment income and business income are usually treated to be different by IRS. Being a business, it is easy to claim for travel expenses, supplies, phone, internet, home office rent, and other expenses spend on the business.
- Life-insurance borrowing
Insurance is an integral part of financial planning. Hence, many advisors ask their clients to purchase term insurance for any kind of casualties. The wealthy investors plan to invest in whole life insurance or universal life insurance policy to get the benefits.
- Using depreciation for lowering the taxes
Among others, it comes handiest when it is about minimizing the taxable income. The best thing about this depreciation is it can be used for both intangible assets like software and tangible assets such as furniture, vehicles, and buildings.
- Gift taxation rules
You will be surprised to know that the wealthy ones use the ability to pass down their money to future generations by using multiple strategies like gift tax exclusion. The benefit of using it is that people don’t have to pay income tax on such transfers.
The bottom line
There are lots of tax strategies used by wealthy and high-income individuals for saving their taxes. The only trick behind it is to plan properly and implement to get the maximum gains.
