15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion

Mitch
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Welcome aboard the extravagant, gold-plated yacht of American tax loopholes, where tax codes are as malleable as Play-Doh and as elusive as a chameleon!

Hold on to your fiscal hats as we unmask the labyrinthine loopholes, sly strategies, and cunning contrivances that allow the nation’s billionaires to, dare we say it, creatively interpret the tax code. Ahoy, mateys, let’s set sail!

No Salary? No Problem!

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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Oh, the wonders of the billionaire’s playbook! Instead of taking regular income – which could be taxed up to 37% – they opt for capital gains.

They borrow against their astronomical wealth to fund their ultra-luxurious lifestyles – from purchasing private jets to acquiring expensive art pieces, and pay a meager 20% tax on it. Voila! Now that’s what we call a magic trick… or should we say, a tragic trick for the rest of us!

Tax Loss Selling

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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Think of tax loss harvesting as the “BOGO” deal of the tax world. Essentially, they sell investments that are performing poorly to offset the taxes on the earnings from their high-performing investments. Then, before you can say ‘tax evasion,’ they quickly purchase similar ones to maintain their position in the market.

It’s a smooth move, akin to dancing around a puddle instead of stepping in. Ah, the subtle ballet of billionaire tax strategy—always on pointe!

Charitable Donations

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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Ah, charitable donations – a sweet deal cloaked in the velvet of philanthropy. It’s like this – our well-off friends donate a chunk of their wealth to a charity of their choice, and voila! They get to deduct that amount from their taxable income. But here’s the real kicker: said charities are often their foundations.

So, effectively, they’re moving money from one pocket to another, all while reducing their tax burden. Ingenious, right? Alas, it’s a high-stakes game of Monopoly where only the billionaires get to pass ‘Go.’

Invest in Commercial Real Estate

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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When folks with a net worth sporting more zeros than a binary code dive into commercial real estate investment, they’re not just playing house. They’re leveraging a strategy as old as money itself. Why settle for a meager income or capital gains tax when owning a skyscraper can offer depreciation deductions?

These legal tax breaks allow our money moguls to claim their property is deteriorating in value, even when they’re skyrocketing. Behold, the mysticism of tax code exploitation!

Take Loans Against Their Own Stock Holdings

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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When billionaires need cash, they don’t sell their assets or dip into their giant vaults of money like Scrooge McDuck. They take out loans using their vast stock holdings as collateral. It’s like hitting two birds with one stone: they get the liquid cash they need and avoid selling stocks, which would trigger a capital gains tax.

So it’s like a double win; they get to keep their cake (stocks) and eat it too (cash)! And all this while the average Joe pays taxes each time his paycheck hits the bank. Ingenious or ingenuous, you decide!

Offshore Assets and Tax Havens

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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For our high-flying, yacht-sailing billionaires, “offshore” isn’t just a breezy afternoon sailing excursion but a clever financial maneuver. They whisk their fortunes away to idyllic islands, not for the sun and sand, but for the sweet tax havens these places offer.

Our billionaire friends artfully dodge a hefty tax bill by parking their assets in a foreign country, leaving Uncle Sam scratching his head. It’s not just about building sandcastles anymore, it’s about building money fortresses safe from the tax collector’s grasp.

Passthrough Businesses

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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So, what’s the game here? Profits skip the merry-go-round of corporate tax entirely, hopping straight to the owners’ personal tax returns. It’s like a VIP access pass that bypasses the crowd (beneficial for them, less so for the tax coffers).

These businesses, often small to mid-sized, save a tidy sum, which usually falls into a lower tax bracket than corporate tax rates. Pulling off this trick is as satisfying to them as finding a $20 bill in an old pair of jeans is for us. Only, in their case, it’s millions.

Like-Kind Exchange of Property

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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Imagine swapping your old bicycle for a swanky new one without paying a dime extra. Sounds sweet, doesn’t it? That’s precisely how the billionaires do it; only they’re swapping multi-million-dollar properties. Now you’d imagine when one billionaire sells a property to another; they’d pay some capital gains tax.

Here’s the kicker – if they use the money to buy another property, the tax magically disappears; and it’s all perfectly legal. They swap ‘similar’ properties, defer their capital gains taxes, and voilà — their tax liabilities magically evaporate. Talk about a real estate Houdini!

Claim Investment Losses

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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Billionaires, just like us, fear the dreadful L-word in the world of finance – Losses. But here’s the kicker: when billion-dollar babies experience a financial hiccup, they turn to the ever-so-generous tax code to wipe their tears.

How does it work? Well, when the value of their investments goes downhill, they can use these losses to offset their taxable income, reducing the amount of tax they owe. The richer the person, the steeper the slip, the bigger the tax break. It’s almost like a game of ‘billionaire bingo,’ only in this version, scoring a ‘loss’ could mean hitting the jackpot.

Tax Credits and Deductions

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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Although designed to support those in need, tax credits and deductions are often exploited by the super-rich. While you and I might get excited about a deduction on our home mortgage interest or a tax credit for energy-saving home improvements, billionaires are playing in an entirely different league.

They’re wrangling deductions for things like investment interest expenses and even depreciation on their private jets. Yes, you heard it right, their private jets! While the rest of us are stuck in traffic, they’re flying high and shaving dollars off their tax bills!

Carried Interest

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
Senate Democrats via Wikimedia Commons

Picture this: you’re a billionaire hedge fund manager, and instead of wages, you get a share of the profits (usually 20%) from the investment fund you manage.

Usually, this would be taxed as ordinary income, but thanks to the magic of carried interest, it’s treated as long-term capital gain and taxed at a much lower rate. It’s like getting a Ferrari for the price of a Ford Fiesta. So, while Joe Public is paying top dollar in taxes, our billionaire is laughing all the way to the bank. Ingenious, right?

Family Offices

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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This is not a new crime show spin-off but an ingenious strategy that the ultra-wealthy use to dance around the tax code. A Family Office is essentially a personal finance SWAT team, a group of whizz-kids whose sole purpose is to manage the wealth of the richest families.

They’ve got economists, tax lawyers, and investment gurus huddled together in one cozy office, finding every possible tax loophole that could save their boss a pretty penny. Not your average 9-to-5 gig, but who wouldn’t want a dedicated team playing financial hide-and-seek with the IRS on their behalf?

Intellectual Property Holdings

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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Who needs a golden goose when you can have a magic patent or copyright, right?! You see, our well-heeled friends often hold assets in the form of patents, copyrights, and trademarks.

Thanks to the laws of the land, these intangible assets can be licensed or sold, often to their own companies, making a nice profit taxed at far lower rates than that of ordinary income. It’s like hosting a mega garage sale and then realizing you own the garage too!

Valuation Discounts for Gifts and Estates

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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Valuation discount is the billionaire’s favorite buy-one-get-one-free deal, with a twist. This wizardry of wealth management allows them to pass on their assets to their heirs at a fraction of their actual value. Imagine walking into a high-end tech store, picking up the latest $1000 gadget, and telling the cashier, “I value this at $200 – that’s what I’ll pay.” Sounds ludicrous, right?

Billionaires transfer assets into a family limited partnership or another entity, then argue the value is far less due to restrictions on the asset. The result? A reduction in taxable value and a hearty high-five to Uncle Sam.

Income Splits

15 Ways American Billionaires Exploit the Tax Code: The Great 80% Evasion
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Here’s how it works, folks: our moneyed masters, instead of keeping their income in the high-tax United States, shift it magically (read: creatively and legally) to countries with lower taxes. A Bermuda briefcase here, a Cayman Island shell corporation there, and voila! It’s like their income was never here to begin with.

Alas, while presto-change-o, their taxes disappear, the nation’s infrastructure, education, and healthcare systems are left pulling rabbits out of empty hats.

Sources: 

The Guardian: We’re told billionaire tax avoidance is ‘perfectly legal’. But is it?

NPR: How the ultrawealthy devise ways to not pay their share of taxes

The Washington Post: The richest 1 percent dodge taxes on more than one-fifth of their income, study shows

Market Realist: Why Certain Billionaires Aren’t Paying Taxes, Explained

The New York Times: Where Did Billionaires’ Billions Go?

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  • Mitch

    A computer science enthusiast with a keen interest in technology and games, Mitchelle (Mitch) contributes a cutting-edge perspective to the Frenz Hub writing team, integrating her academic knowledge with her personal passions

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