Ten Ways Billionaires Avoid Taxes on an Epic Scale

[Hydrogen]

Last June, drawing on the largest trove of confidential American tax data that’s ever been obtained, ProPublica launched a series of stories documenting the key ways the ultrawealthy avoid taxes, strategies that are largely unavailable to most taxpayers. To mark the first anniversary of the launch, we decided to assemble a quick summary of the techniques — all of which can generate tax savings on a massive scale — revealed in the series.

1. The Ultra Wealth Effect
Our first story unraveled how billionaires like Elon Musk, Warren Buffett and Jeff Bezos were able to amass some of the largest fortunes in history while paying remarkably little tax relative to their immense wealth. They did it in part by avoiding selling off their vast holdings of stock. The U.S. system taxes income. Selling stock generates income, so they avoid income as the system defines it. Meanwhile, billionaires can tap into their wealth by borrowing against it. And borrowing isn’t taxable. (Buffett said he followed the law and preferred that his wealth go to charity; the others didn’t comment beyond a “?” from Musk.)

2. The $5 Billion IRA
Other billionaires used less conventional ways to avoid income, we found. Tech mogul Peter Thiel amassed a $5 billion Roth IRA, a type of account that shields income from taxes and is intended to help low- and middle-class savers prepare for retirement. Back in 1999, Thiel stuffed low-valued shares of the company that would become PayPal into the account, a maneuver tax lawyers said risked running afoul of IRS rules. (It’s not clear if the government ever challenged the move.) He set himself up to reap billions in untaxed gains. (Thiel did not respond to questions for the original article.)

3. The $1 Billion Parlor Trick: Turning High-Tax-Rate Trading into Low-Tax-Rate Income
Even when tech billionaires do show income on their tax return, they tend to pay relatively low income tax rates. That’s because of the type of income they have: Gains from long-term investments, such as from stock sales, are taxed at a lower rate. But what do you do if you’re making over $1 billion every year, and it’s largely from short-term trading? Do you just accept that you’ll pay the higher rate on all that income? As we reported this week, Jeff Yass, head of one of the most profitable firms on Wall Street, did not meekly accept this fate. Instead, his firm, Susquehanna International Group, found creative ways to transform the wrong sort of income into the right kind, generating tax savings that exceeded $1 billion over just six years. (Susquehanna declined to comment but in a court case that centered on similar allegations, it maintained that it complies with the law.)

4: The Magic of Sports Ownership: Make Money While (Legally) Reporting Losses
The tax code offers business owners a slew of methods to erase income through deductions, none more awesome than buying a sports team, as former Microsoft CEO Steve Ballmer did with the Los Angeles Clippers. It doesn’t matter whether the team is actually profitable and growing in value. It can still be a write-off. (In some cases, we found, owners could effectively deduct a given player’s contract not once, but twice. They’re allowed to take deductions comparable to those for factory equipment that loses value as it ages, even as teams almost inevitably gain in value.) That’s one reason owners tend to pay far lower tax rates than the athletes they employ, or even the people serving beer in the team’s stadium. In our story, we found a Clippers arena worker who made $45,000 a year and paid a higher tax rate than the billionaire Ballmer. (Ballmer said he pays the taxes he owes.)

5. Build, Drill and Save: The Real Estate and Oil Businesses Can Both Be Tax Havens
In certain industries, like real estate or oil and gas, the tax breaks are so plentiful that billionaires can erase their income entirely even as they grow richer. That’s how real estate developer Stephen Ross (who also happens to own the Miami Dolphins) went 10 years without paying any income tax. Ross said that he followed the law. Another mogul, this one in the oil business, managed to tap a near bottomless well of write-offs via one of the biggest oil spills in history. (The mogul’s representatives did not respond to requests for comment.)

6. Even a Billionaire’s Hobbies Can Pay Off at Tax Time
Deductions from hobbies and side projects, which the ultrawealthy can structure as businesses, are another fun option. For some billionaires, it’s race horses: We found that six owners of thoroughbreds at the 2021 Kentucky Derby had taken a combined $600 million in tax write-offs on their horse racing operations. For others, like Beanie Babies founder Ty Warner, it’s luxury hotels. The billionaire splurged on a couple of landmark Four Seasons locations and then went 12 years without paying any income tax. (Representatives for Warner did not respond to requests for comment.)

7. Think Your Taxes are Too High? Change the Tax Laws
Sometimes, it pays to fight for a new tax break. For the billionaires who contributed millions to Republican politicians, the payoff came in the form of Trump’s “big, beautiful tax cut” for passthrough businesses. We found the change sent $1 billion in tax savings in a single year to just 82 ultrawealthy households. Some business owners also boosted their savings with a trick: They slashed their own salaries and categorized the money instead as passthrough income.

8. Why Tech Billionaires Pay Less Than Hedge-Fund Managers
With so many options to reduce taxes, the richest Americans often manage low income tax rates. We analyzed the incomes and taxes of the country’s top 400 earners, those averaging over $110 million in income per year. Overall, the group paid relatively low rates, but certain segments (tech billionaires, heirs, private equity executives) stood out even within this elite population because they were able to draw on the sorts of techniques detailed above. (Also drawing on these techniques were wealthy politicians, like the governors of Colorado and West Virginia.)

9. Brother, Can You Spare a Stimulus Check?
But the real standouts were the billionaires who reported such low incomes that they qualified for government assistance. At least 18 billionaires received stimulus checks in 2020, because their tax returns placed them below the income cutoff ($150,000 for a married couple).

10. Trust This: How Wealthy Families Pass Billions to Heirs While Avoiding Taxes
The holes in the estate tax, we found, are even more remarkable. There are well-worn ways to make sure Uncle Sam doesn’t get his cut of a fortune being passed on to heirs, and the most common is through a trust. How common no one can say, but we found evidence that at least half of the nation’s 100 richest individuals had used estate-tax-dodging trusts. In another story,we followed three century-old dynasties down through the generations, showing how they used trusts to avoid taxes, so that a fortune could pass all the way from the original early 20th century tycoon to, for example, the great-great-granddaughter who recently collected $210 million before her 19th birthday.


https://www.propublica.org/article/billionaires-tax-avoidance-techniques-irs-files

....


I for one, don't mind if the wealthy exploit legal tax loopholes to protect their net worth from taxation. They are only required to follow the laws. Historically lawmakers have always catered to the self interests of the rich. Even in decades past. When Warren Buffett complained over being taxed at 17% of income, even without using tax loopholes.

The rich tend to be the most motivated and hardworking demographic. They invest the most time and energy into their finances. And they also take on the biggest risks. It makes sense for them to enjoy the biggest rewards.

My only gripe is the unequal growth of CEO salaries. Which have vastly outstripped growth of other income brackets. And teetered global economies into a state of imbalance. Through the earning and spending power of consumers becoming increasingly unequal.

[1714640107]

1714640107

[1714640107]

1714640107

[1714640107]

1714640107

[1714640107]

1714640107

[1714640107]

1714640107

[Darker45]

Tax avoidance is legal. Tax evasion is illegal. The billionaires probably do both as the former doesn't seem to suffice. These tax loopholes, and why they remain unaddressed to this day, are specifically for them. Isn't it enough?

While it's just fair that these people enjoy the biggest rewards, I guess it's unfair for them to question even the small tax due to them out of their big income. If the common man pays 25% or 30% out of his small income, why does it seem to be an issue for a rich man to pay even less than 10% out of his huge income?

My only gripe is the unequal growth of CEO salaries. Which have vastly outstripped growth of other income brackets. And teetered global economies into a state of imbalance.

LOL!

[NotATether]

I personally do not care. It's none of our business how other people save their money anyway.

Lowering purchasing power of the commoners can be addressed by governments long-term. (And is a matter which is entirely unrelated to cryptocurrencies).

What is more urgent to address is the social divide that is resulting not only between America's rich and poor (this is basically to say, anybody that *looks* wealthy vs. everyone else)  but also between America and low standard-of-living countries that distrusts the US's economic influences for this reason.

Because internal problems inside the USA tend to be exacerbated to the rest of the world (primarily because America generally does not care about what happens in other countries. This is true both from a civillian perspective and the government).

So your race, gender and financial problems cannot be solved by fixing them in the USA first. Then other countries will copy the solution.

[PrivacyG]

I would not put a sign of equality between rich and hard working.  There are definitely some people very motivated and hard working that are not rich, and there are a lot of them I believe.

I do not agree they should be getting the big rewards just because they are rich and motivated.  It seems unfair to me that someone with more purchasing power than me, earning more than me and already being in a much, much higher position than I am by having political connections and all of that, pays less than I do.  To me the only fair way is either everyone pays the same or nobody pays at all.

For example.  If I, as an average citizen want to avoid paying taxes then my ways and options are very limited and I may even be called a criminal for it.  If they want to do it, they have so many ways and they will be in full legality even if not paying taxes.  To me, it is more than unfair that things are this way.

-
Regards,
PrivacyG

[Poker Player]

First to make clear that we are not talking about tax evasion, but tax avoidance, which simply means taking advantage of laws to avoid paying less taxes, like putting a lot of money in an IRA or not selling your stock no matter how much it goes up and borrow against them in Musk's case.
The rich are rich among other things because of that, besides knowing how to make money they minimize paying taxes.

I for one, don't mind if the wealthy exploit legal tax loopholes to protect their net worth from taxation. They are only required to follow the laws. Historically lawmakers have always catered to the self interests of the rich. Even in decades past. When Warren Buffett complained over being taxed at 17% of income, even without using tax loopholes.

To clarify, in case anyone doesn't know, what he complained about was that he paid less tax than his secretary:

Warren Buffett says even though he and other top earners are paying higher taxes this year, he thinks he's still paying a lower rate than his secretary.

We can see this as a conspiracy of the rich or as a way to encourage job creation and investment by the private sector because the systems that crush entrepreneurs with taxes and regulations are very egalitarian in how poor everyone is except those who govern.

[dothebeats]

It's crazy how the rich, who has the power to literally change the world if they wanted to, avoids paying taxes. Well, if they just pay whatever the government imposed on them that would be great, since they already contribute to the economy by way of their businesses and the jobs it create. The thing is, they go out of their own way to purposely not pay taxes. They can pay for it quite easily and still be on the positive side of things at the end of the day, but they believe that they have contributed enough hence they could contribute no more. Not saying that they should do philanthropic acts or give everything that they have, but maybe they could do a little more for the greater good.

[Jemzx00]

It's crazy how the rich, who has the power to literally change the world if they wanted to, avoids paying taxes. Well, if they just pay whatever the government imposed on them that would be great, since they already contribute to the economy by way of their businesses and the jobs it create. The thing is, they go out of their own way to purposely not pay taxes. They can pay for it quite easily and still be on the positive side of things at the end of the day, but they believe that they have contributed enough hence they could contribute no more. Not saying that they should do philanthropic acts or give everything that they have, but maybe they could do a little more for the greater good.

Actually, these rich people do pay the right amount of tax that the government imposed to them. Unfortunately, they try to avoid paying too much tax by exploiting or taking advantage of the loopholes on the tax law. What they do is not illegal as they are not evading their tax rather they are limiting the taxes that will be imposed to them such as investments on stocks.

Also, I don't really get why being rich will makes them or require them to help other people. To be perfectly fair, most of them do help other people that are in need but they discretely do this yet more and more people are being more demanding like rich people are entitled to help more.

[kryptqnick]

I think these things just show how bad the legislation is, how favorable it is to those who are already very wealthy and powerful. The thing about the sell tax and avoiding payments by now selling should be fixed one way or another. If it were up to me, I'd introduce a specific law for everyone with wealth above some very high threshold, requiring transfering of assets for the good of the state if one is not selling the assets and thus not paying the sell tax. Or tax borrowing, and tax it hard.
More importantly, we need to change the culture. People who are wealthy but barely contributing (proportionately to their wealth) to their communities or to other communities which are in great suffering should be shamed, condemned. It should be considered a matter of respect to donate generously and do things like fund hospitals, universities, establish scholarship funds, help the elderly etc.
As for the income gap, it exists and can be very high, but let's not forget that it's minuscule compared to the wealth gap,

[Husires]

The struggle of the upper class should not have an effect, as we strive for a tax system free of loopholes. We will find that the rich are less paid compared to the poor. The best thing that can be done is to educate the poor to reduce the differences between classes.

What is happening now of inflation not only increases the gap between the rich and the poor, but also destroys the middle class, which is the mainstay of the economy.

Note, for example, how a change such as a pandemic can bring about profound changes in the economy.

https://www.researchgate.net/figure/How-the-COVID-19-lockdown-affected-job-routines-for-participants-in-different-job-groups_fig1_349191085

[buwaytress]

To note that yes, what's being talked about is not tax evasion but avoidance, the latter being not illegal.

However, it is recognised more and more that fair judgments must take into account spirit of the law, not simply letter. Ethical and moral reasons, and more and more developed states already have so-called Anti-Avoidance legislation to prevent "aggressive" tax avoidance. I'm not myself clear on what that means but clearly, a lot of what's in OP would now be seen as aggressive.

Simply put, if loopholes are exploited or created to circumvent the very reason the law was put in place, it can be deemed as criminal, or at least deserving of just punishment.

Aggressive avoidance can only be afforded by large multinationals who have armies of specialised tax lawyers on their payroll -- those who can't afford it can't avoid tax aggressively --- leads to unfair competition and inequal burden of "who pays for all the infrastructure we're all using".

When you see others using as much as you pay the same rate, paying tax becomes more acceptable.

This is not the case, and leads to more people wanting to pay less.

[Gyfts]

My only gripe is the unequal growth of CEO salaries. Which have vastly outstripped growth of other income brackets. And teetered global economies into a state of imbalance. Through the earning and spending power of consumers becoming increasingly unequal.

CEO's only are paid what private companies are willing to pay them. It isn't a secret that a CEO can take a multi-billion dollar company and derail it completely if they are so inclined.

How has the salaries of CEO's caused economic imbalance? What portion of any country's economy is dedicated to a CEO's salary?

Seems to me the billionaires not paying their taxes are the bigger issue than the CEO's.

[Hydrogen]

CEO's only are paid what private companies are willing to pay them.

In years past, there were reports of CEOs firing non essential employees.

To incorporate the fired employee salaries, into their own paychecks to give themselves a pay raise.

This was one of the methods by which CEOs achieved high salary growth.

Many CEOs are merely figureheads and official spokesman. They don't know the basics of finance or running a business.

It is a common trend in the business world where professionals comment upon the time they interviewed candidates for a CEO position. And the vast majority of them didn't know the basics on anything.

Recently Elon Musk commented on MBAs and business schools being fast tracks to executive positions, with reduced emphasis on knowledge and learning.

Whatever CEOs are paid, does not necessarily equate to what they deserve. That could be a point some are missing.

[davis196]

Whatever CEOs are paid, does not necessarily equate to what they deserve. That could be a point some are missing.

"deserve" is not an economical or financial term. It's more like a moral or social term.
Most people don't get what they truly deserve from life, while others get way more than what they truly deserve. Life isn't fair, but who cares.
If a big corporation is willing to pay millions of dollars to a CEO, there must be some kind of benefit this corporation is getting out of hiring this particular guy as a CEO. In the country where I live, many former politicians and lobbyists het hired on high profile corporate positions, because they have deep connections with the government. I guess that those deep political connections cost a lot of money.
Anyway, the debate about rich people exploiting tax loopholes will continue forever and we cannot do anything to stop the rich from exploiting those tax loopholes(and to influence the law makers to create new loopholes).

[Lucius]

Anyway, the debate about rich people exploiting tax loopholes will continue forever and we cannot do anything to stop the rich from exploiting those tax loopholes(and to influence the law makers to create new loopholes).

It would be more accurate to say that they use what the politicians do for them in exchange for all those generous donations in the run-up to the elections. It's no secret that politics and big capital are always connected, and that those with the most money usually win the elections, and later return the favor through laws that mainly favor the rich.

If ordinary people were a little more active in political and social life and went to the polls in greater numbers and demanded changes, maybe something would change. There is a saying that says "bad government is elected by good people who stay at home during elections", which most people could notice in their countries.

There are almost 8 billion people in the world ruled by only a handful of people who practically practice modern slavery - give a man a roof over his head and some food + a little cheap entertainment and he will behave like an obedient dog.

[edgycorner]

Finding a loophole isn't that hard. I have paid practically zero tax, and it's all legal. I am not rich either. My country has zero tax on all business-related inward remits   (since it's bringing new capital to my country's economy)
As for income tax, I am mostly in loss or debt  

It's almost impossible if you are salaried, and working for some other company in your own country.
But if the majority of your earnings come from your own business or freelancing, tax can be easily reduced to zero. No matter where you live. Even if you are in profit ~ offshore corps to conduct your business. Check Delaware C-corps if you are in US. It's all legal btw
Do I suggest not paying taxes if you are in profit? Absolutely not.

Consult a good CPA and make sure you aren't breaking any law. it's a free world, to each his own  

[Poker Player]

There are almost 8 billion people in the world ruled by only a handful of people who practically practice modern slavery - give a man a roof over his head and some food + a little cheap entertainment and he will behave like an obedient dog.

Really?

More than in the Middle Ages?

I don't think we are going to agree here, since we start from different ideological positions.

The essential difference between the present time and the past is the reduction of hunger in the world, and the fact that many countries where not so long ago there was hunger are now full of fat people.

I don't know what your conception of modern slavery is, but it is certainly much better in terms of quality of life than the old slavery.

If we are on our way to 8 billion people on Earth, it is not precisely because the Earth is full of slaves, but because there is a business in producing a lot of cheap food and selling it to a lot of people. And there are people who get rich from that.

Today's rich, unlike the feudal lords or the former slaveholders, are people who study money and know very well how it works, and besides, they give goods and services at a good price to many people.

With its flaws, of course, the modern world where free enterprise exists is much better than in times past.

[Cryptock]

There are almost 8 billion people in the world ruled by only a handful of people who practically practice modern slavery - give a man a roof over his head and some food + a little cheap entertainment and he will behave like an obedient dog.

Really?

More than in the Middle Ages?

I don't think we are going to agree here, since we start from different ideological positions.

The essential difference between the present time and the past is the reduction of hunger in the world, and the fact that many countries where not so long ago there was hunger are now full of fat people.

I don't know what your conception of modern slavery is, but it is certainly much better in terms of quality of life than the old slavery.

If we are on our way to 8 billion people on Earth, it is not precisely because the Earth is full of slaves, but because there is a business in producing a lot of cheap food and selling it to a lot of people. And there are people who get rich from that.

Today's rich, unlike the feudal lords or the former slaveholders, are people who study money and know very well how it works, and besides, they give goods and services at a good price to many people.

With its flaws, of course, the modern world where free enterprise exists is much better than in times past.

In our region there are different laws for taxes and people find ways to escape taxes.
Most of the people do not pay taxes - and when you deal with the vendors they ask - would you like to pay tax or would you like receipt with out tax and many people go for the later option.

[el kaka22]

The issue is that billionaires can "avoid" taxes, they did not become a big rich corporation at the end of the day and then they ended up avoiding taxes. Even small corporations could do it, but at this level of course.

These are at a level so big that when they reach to a point, where we should be seeing some "law" changes based on the bribery of these huge corporations then we are going to end up with something a bit of a big trouble for the rest of us. The less taxes equals to less government help, less government help means a lot more poor people doing much more horrible, and only a few surviving super wealthy people ruling the whole nation.

[og kush420]

The issue is that billionaires can "avoid" taxes, they did not become a big rich corporation at the end of the day and then they ended up avoiding taxes. Even small corporations could do it, but at this level of course.

These are at a level so big that when they reach to a point, where we should be seeing some "law" changes based on the bribery of these huge corporations then we are going to end up with something a bit of a big trouble for the rest of us. The less taxes equals to less government help, less government help means a lot more poor people doing much more horrible, and only a few surviving super wealthy people ruling the whole nation.

I think it is not only the billionaire - it's the middle class, upper middle class - everyone tries to avoid taxes. Mostly the developed countries does not face this kind of situation. But the underdeveloped countries have this practice in common. The people avoid taxes and expect the government to give them all what they need.