Yes, the super rich are different from the rest. Many of them pay very little income taxes.
Some of the world’s richest managers, including Warren Buffett, Jeff Bezos, Michael Bloomberg and Elon Musk, pay almost no taxes compared to their wealth, a ProPublica report revealed on Tuesday.
“The tax law is not for the payroll,” said Eric Pierre, a certified public accountant and owner at Pierre Accounting, based in Austin, Texas.
Most Americans earn income through their work, such as wages, salaries, or other benefits provided by their employer.
However, the top 1
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Usually, the more someone earns, the higher the percentage of capital income and less labor compensation they receive each year, the Tax Policy Center found.
While most people pay taxes through their salary, the top 1% may not see income from their tax returns. Therefore: There are several ways to delay or avoid investment taxes.
For example, if someone has $ 1 million in stock, which increases to $ 2 million, they will not owe profit taxes until they sell.
In addition, they can reduce the tax bite by synchronizing sales or offsetting profits with other losses.
Another strategy could be to use valued assets as collateral for the purchase of new investments.
The wealthy can hold assets until they die, avoiding capital gains taxes and providing heirs with inherited property valued at the date of their death.
American billionaires increased their wealth by 55%, or $ 1.6 trillion, during the pandemic, according to an analysis by left-wing Americans for Tax Reform and the Institute for Political Studies.
President Joe Biden wants to limit tax evasion by 1% by adding inheritance taxes with profits of more than $ 1 million.
He also called for an increase in the highest rate of capital gains to 39.6% from 20%, which is in line with his proposed highest income tax rate.
Tax strategies of the rich
Although the report does not reveal in-depth strategies, there are lessons for Americans who want to cut taxes and amass wealth, Pierre said.
Some of these tactics may include borrowing equity to buy more real estate or starting a side business and researching legal tax breaks.
“It’s a change of mindset,” he said.
Of course, not everyone has the means or appetite for these strategies, he said. But Americans may be beginning to think about how to diversify their incomes above their wages.
“You may not get billions or pay 3.3% [tax] “, he said.” But you can reduce your taxes from 25% to 20%, to 12% to 14% with adjustments to the way you distribute your money. “
But everyone’s situation is different, so it’s extremely important to talk to a CPA or financial advisor, he added.
Better ways to tax the rich
It is clear that the rich have found ways to avoid taxes, but there are conflicting opinions on how to solve the problem.
Some politicians are calling for taxation on the growth of the wealthy’s assets each year, known as the “brand to market” system, along with a wealth tax.
“For politicians who want to increase the tax burden on the rich, there are better ways to do it,” said Erica York, an economist at the Tax Foundation’s Federal Tax Policy Center.
Taxing asset growth each year can be “extremely complex”, especially from an administrative point of view. There may be “complex valuation issues” for assets and businesses, York said.
“You would also put a tax burden on savings and investment decisions,” she added.
Instead, legislators may consider the so-called A progressive consumption tax used by member countries of the Organization for Economic Co-operation and Development, she suggested.
Another option could be value added tax, a fee added to sales of goods and services.
Lawmakers may also consider a national sales tax. Both can avoid the challenge of trying to charge asset growth taxes each year, York said.