Have you ever wondered how the rich always get away from paying taxes?
They earn more than you do, so naturally, they should contribute more in Federal Income Tax. But this is not the case. Most rich-people avoid paying taxes by using clever tricks and techniques that a middle or lower class person can not even understand. They can hire experienced tax lawyers and tax accountants. A middle-class person cannot even afford to hire a tax consultant. Most of them, do their taxes themselves.
Here are the 4 unspoken tax secrets of the rich.
1. They donate money to charitable organizations
The money donated to charity comes under Itemized deduction. Hence, a donor can lower his/her Federal income tax by itemizing their tax deductions. A taxpayer has two options while filing the taxes: Standard deduction and Itemized deduction. Once a rich person donates a certain amount of money or property to a charitable organization, they subtract the donated amount from their adjusted gross income (AGI) and only pay taxes for the remaining amount.
2. The US tax code is designed for the rich
The US government can only tax you on your annual income. A regular middle person works super hard to earn enough money to pay his/her bills, buy food, take a two-week vacation(if lucky), buy clothes, etc. There is very little money left at the end of the year which anyways goes into his/her savings account.
This is not the case with the rich. They have a ton of excess money left in their bank account which they either invest or allow it to grow slowly. According to the US tax, the profit earned from the excess money is completely tax-deductible. Hence, the rich get richer and the poor remain poor.
3. Estate and gift tax limits are too high
Now a rich person can gift $11.4 million to their children or predecessors without paying any taxes on it. It’s as if the US tax code is written by the rich themselves. How does the nation benefit from such a tax law?
4. 1031 Exchanges
1031 Exchange lets a rich person buys a property for less price and sell for a large profit without having to pay taxes on the profit money. Usually, people sell a property in exchange for another better property. There is no transaction of money here. A rich person can completely avoid paying taxes on this exchange. There is only one condition though, the investor should complete the transaction within 45 days of selling the property. A new property should be ready and waiting.
Advice from Robert Kiyosaki
Financial advisor and the author of the book The Rich Dad Poor Dad, Robert Kiyosaki once said, “If you want to be rich, you need to play by the rules of the rich.“
Robert believes that a middle-class person can also reduce his/her taxes by learning about the US tax code. He also urges the middle class to firmly believe that they have no obligation to pay more money in taxes that they are supposed to. A rich person has a lot of assets to pay for their expenses but the middle class only has a monthly salary. So, as a middle or lower class, you should do everything in your power to lower your taxes as well.