14 Ways the Ultra-Rich Pay Less in Taxes (While You Pay More)
The ultra-rich don’t waste time complaining about taxes like everyone else. They know the game, and they play it better than anyone. While most people see taxes as unavoidable, the wealthy treat them as just another problem to solve.
America’s wealthiest hold an estimated $8.5 trillion in unrealized capital gains. That’s money they haven’t paid taxes on and probably never will. Their investments keep growing, their wealth compounds, and the IRS is left waiting for a tax bill that may never come.
So, how do they do it? Let’s break down the strategies the wealthiest Americans use to legally lower their tax bills while growing their fortunes. They don’t cheat the system, they just use it better than everyone else.
If you want to keep more of your money, you’ll want to understand these minimizing strategies too. Let’s get into them.
Table of Contents
Owning Real Estate
The rich don’t just buy real estate to own property, they buy it because it’s one of the best ways to make money while reporting losses. Rental income rolls in, but thanks to depreciation, mortgage interest, and property expenses, their tax return often shows a loss.
That means they’re making money while paying little to no taxes. Depreciation is the real magic trick here. A high-end rental in a pricey city can generate tons of cash flow while showing a tax loss on paper.
If they ever decide to sell, they don’t cash out like regular people and pay taxes. They swap properties through a 1031 exchange, rolling the profits into another investment and delaying taxes indefinitely.
The game is simple: collect rent, claim losses, trade up, and repeat, while the IRS takes a backseat.
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Deferring Capital Gains
Selling an asset means paying taxes. The wealthy avoid this at all costs. Instead of selling, they hold assets for decades or use a 1031 exchange to swap one property for another, tax-free. The longer they hold, the bigger the gains, and the less they owe in taxes.
When it’s time to pass assets down, they don’t just hand them over. They use the “step-up in basis,” which resets the asset’s value to its current market price. That means years, sometimes decades, of capital gains taxes simply disappear.
It’s one of the biggest tax breaks in the country, and it’s how family wealth stays intact for generations.
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The Buy, Borrow, Die Strategy
The ultra-rich don’t just earn money, they make sure they never pay taxes on it. Instead of selling assets and triggering capital gains taxes, they borrow against them. Banks happily lend them millions using stocks, real estate, or businesses as collateral.
Since loans aren’t income, there’s no tax bill. They borrow, spend, and keep their investments growing. Then, when they die, their heirs inherit everything with a step-up in basis, wiping out the tax liability. No taxes while alive, no taxes after death.
It’s one of the biggest advantages of generational wealth, and the ultra-rich have been using it for decades.
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Keeping Ordinary Income Low
The ultra-rich don’t take salaries because they know salaries are taxed the highest. Wages, bonuses, and regular income can be taxed up to 37%, while long-term capital gains and qualified dividends max out at 23.8%.
That’s nearly half the tax rate just by shifting how money is earned. Take a $500,000 salary, it could come with a $144,747 tax bill. But if that same $500,000 is earned through long-term capital gains, taxes drop to $77,629.
That’s a 100% increase in taxes just for earning money the wrong way. The rich don’t work for their money, their money works for them, and gets taxed less because of it.
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Setting Up Businesses
Businesses aren’t just about making money, they’re about keeping it. The wealthy set up businesses and use them to write off expenses that regular people pay for with after-tax income. Private jets, luxury cars, and even yachts can qualify as business assets with the right structure.
Bonus depreciation lets them write off these purchases in the first year, creating massive tax deductions. These “paper losses” lower taxable income, sometimes to the point where they owe nothing at all.
Owning a business isn’t just about profit, it’s about turning everyday expenses into tax advantages.
Charitable Giving and Foundations
Donating to charity sounds like a generous act, and it is, but for the ultra-rich, it’s also a tax strategy. Instead of giving money directly, they set up private foundations or donor-advised funds (DAFs).
These let them take huge tax deductions while still keeping control over how the money is used. Take Bill Gates, for example. He moved billions into the Bill & Melinda Gates Foundation, reducing his taxable income while ensuring his money is spent on causes he chooses.
Once money is inside a foundation, it grows tax-free, and donations to it count as deductions. The IRS gets less, and their wealth keeps working in their favor.
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Retirement Accounts and Roth IRAs
Most people think of retirement accounts as something they’ll use decades later, but the wealthy use them strategically to avoid taxes right now. Self-directed IRAs let them invest in real estate, private businesses, and even startups, all while enjoying tax-deferred or tax-free growth.
One of their favorite tricks? The Backdoor Roth IRA. Normally, high earners can’t contribute to Roth IRAs, but they get around this rule by first putting money into a traditional IRA and then converting it to a Roth. Once it’s in a Roth IRA, all future growth is completely tax-free.
Over decades, this adds up to millions in tax-free retirement savings.
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Using Investment Credits
The government hands out tax credits to encourage investment in certain areas, and the rich take full advantage. One of the most popular is the rehabilitation credit (Form 3468), which gives up to 20% back on expenses for renovating historic buildings.
Another favorite is Qualified Opportunity Zones. These programs give investors tax breaks for putting money into underdeveloped areas. If they hold the investment long enough, they can eliminate capital gains taxes completely.
The tax code isn’t just about collecting money, it’s about rewarding smart investors. And the rich make sure to be on the receiving end of those rewards.
Borrowing Against Investments
Selling assets triggers taxes, so the rich don’t sell. Instead, they borrow against their investments. A billionaire with billions in stock doesn’t need to sell shares and pay capital gains taxes, he can just take a loan against them and pay nothing in taxes.
Elon Musk famously took out a $12.5 billion loan backed by Tesla stock. Since loans aren’t considered income, there’s no tax bill. Meanwhile, his stock continues to grow in value, and he avoids ever having to “cash out.”
This strategy lets the rich access unlimited funds without ever selling or paying capital gains taxes.
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Corporate Structures for Tax Deferral
The wealthy don’t get paid like regular employees because regular employees pay the highest taxes. Instead, they use corporate structures to control how and when they’re taxed. They set up businesses, keep income inside corporations, and delay personal taxes as long as possible.
Corporations don’t get taxed on reinvested earnings, which means a wealthy business owner can keep profits inside their company instead of paying themselves a big taxable salary. They also take advantage of lower corporate tax rates and can write off business expenses that regular employees can’t.
Instead of working for money, they structure their businesses so their money works for them, tax efficiently.
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Private Placement Life Insurance (PPLI)
Most people think of life insurance as just a way to leave money behind. The ultra-rich see it as a tax-free investment vehicle. With Private Placement Life Insurance (PPLI), they invest in stocks, hedge funds, and real estate within an insurance policy, where their money grows completely tax-free.
Here’s why it works: normally, investment gains get taxed. But inside a PPLI, there’s no tax on growth, no tax on dividends, and no capital gains tax when money is withdrawn. When structured properly, they can even borrow against the policy for tax-free cash flow.
It’s another way the rich grow wealth while keeping the IRS out of the picture.
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Trusts and Estate Planning
Wealthy families don’t just think about their own taxes, they plan for generations ahead. Without proper planning, estate taxes can take up to 40% of a person’s wealth after they die. The rich avoid this completely with trusts that protect their assets and minimize taxes.
A well-structured irrevocable trust removes assets from a person’s taxable estate, meaning the IRS can’t touch it when they die. Some families set up dynasty trusts, allowing wealth to pass down for multiple generations without ever triggering estate taxes.
The result? The family fortune stays intact, while the government gets nothing.
Avoiding Dividends and Stock Sales
Dividends sound great, until the IRS takes a cut. That’s why wealthy investors avoid dividend-paying stocks and instead focus on stocks that appreciate over time. Growth stocks don’t generate taxable income until they’re sold, and if they’re never sold, the tax never comes due.
When they do need cash, they don’t sell stocks outright. Selling means capital gains taxes, so instead, they sell covered calls, take out low-interest loans, or donate shares to charitable foundations for a tax write-off.
The goal is simple: keep their wealth growing and minimize what they owe.
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Investing in Expert Planning
The average person thinks about taxes once a year. The rich think about them all the time. They don’t guess or hope for a refund, they hire the best accountants, tax attorneys, and estate planners to make sure they legally pay as little as possible.
They use trusts, legal entities, and complex tax strategies to structure their wealth. They don’t just plan for this year, they plan for the next 50.
When there’s millions (or billions) at stake, spending money on expert planning isn’t an expense, it’s an investment that pays for itself many times over.
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How the Rich Keep Taxes Low
The ultra-rich don’t complain about taxes, they outsmart them. They use every legal strategy available to shrink their tax bills while growing their wealth. Real estate, trusts, corporate structures, and tax-free borrowing aren’t just loopholes, they’re part of the playbook.
The IRS takes a cut of every dollar most people earn, but the wealthy make sure their money works for them, not the government. The tax code isn’t just a list of rules, it’s a guide to keeping more of what’s yours.
If you’re not using it to your advantage, you’re leaving money on the table.
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