This got me curious what these guys do differently to avoid taxes without any consequences from the IRS well as it turns out the tax code can be a little complicated and some of the wealthiest people in the world I found a few loopholes to keep their money away from uncle Sam's pockets one of the most simple yet fastest way to start saving money in taxes if you already have a good business is to turn your sole proprietor business into a corporation because these 2 are taxed very differently when a person does a business as a sole proprietor they are combining their own personal finances with their business finances and their business income will be taxed just like earned income which can go up to 37 percent just for federal taxes alone so if you made $1000000 a year as a sole proprietor you will be on the hook to pay up to $370000 in just federal taxes but if you are a corporation you will only have to pay $210000 in federal taxes this is the corporate tax rate in the U. S. is 21 percent becoming a corporation will automatically save you $160000 in federal taxes for that $0 year and this number used to be higher in trump's presidency corporate taxes went from 35 percent down to 21 percent with the tax cuts and jobs act of 2017 the only downside here is that since the corporation as a different entity than the owner technically you don't own that money the corporation owns and money and you own the corporation and if you want to move the money from the company's bank account into your own bank account by paying yourself dividends you will have to pay an additional 15 to 20 percent dividend distribution tax in some cases this double taxation still ends up being less than if you were to pay earned income tax many people even celebrities are beginning to use corporations to run their businesses celebrities like Jay Z.
have corporations that hold the rights to the performer which is himself this way the money doesn't go straight to his bank. Hailed triggering the higher tax but rather to his corporation J. C. incorporated this not only allows the owner to take advantage of corporate tax rates but also to claim any expenses related to the business as a corporate loss many successful corporate owners buy their luxuries like a nice car or lease a beautiful house as long as it's related to business which allows them to claim those purchases as a business expense which lowers the taxable income of the company lowering their tax bill in a sense they are allowed to spend money that is related to their business first before the IRS comes to claim their share no this is an easy way for anyone with a good business to reduce their taxes but not eliminate them there are a few other loopholes the wealthy use that allows them to not pay any taxes if they don't want to a very common practice of multi $0 companies is the use of what are called tax seasons these little handy loopholes are companies that are placed in the offshore countries to offer these corporations and individuals little to no tax liability and legally they can share no financial information about the company to foreign tax authorities like the US some taxi bins are places like the Bahamas Bermuda Jersey in the Cayman Islands just to name a few now companies can't just send their money to a bank account to the Bahamas to avoid taxes there has to be a legal structure that takes advantage of the current tax laws to pretend like they made less money than they actually did for example let's say that you build a company and you made $100000000 in profits this year this means that in the US you will have to pay $21000000 in corporate taxes based on the 21 percent tax rate but what if you can tell the government that you only made $20000000 instead of 100 days means that you would only have to pay 4.$2000000 in corporate taxes instead of the normal 21000000 but how do you do that the way many companies can legally do this is by creating a company off shore like in the Bahamas.
As in transfer the ownership of their patents trademarks and intellectual property from their real company in the US to their other company in the Bahamas and when Uncle Sam comes to collect 21000000 they can just say sorry we have to pay $80000000 to this other company in the Bahamas to license their patents and now they have successfully sheltered $80000000 off shore and paid $0 in taxes for them because the Bahamas happens to have a 0 percent corporate tax rate and instead of paying $21000000 the only paid a 4.$2000000 sitting around 16.$8000000 in taxes this means that instead of paying 21 percent taxes the only paid 4.2 percent of their total profits this strategy may save lots of money in taxes but it also has its flaws well this money is hidden offshore it can not be used as the company tries to bring the money back to the US it would be taxed this is what originally created apple's cash problem they had lots of money in the bank but it was out of reach because bringing the money back would mean paying the taxes they were avoiding in the first place so what would be the purpose of hiding money offshore if you can't use it well company shelter their money offshore to be brought back when an opportunity to save in taxes comes to light and this happened in January of 2018 where the corporate tax rate change from 35 percent to 21 percent given the perfect opportunity for companies to bring back their money and pay less in taxes if you paid attention in the news over the last year apple has been aggressively bringing back their money and buying back their shares which in turn makes the more money by increasing the price of the shares which can allow them to save in taxes in a different way. C. many company executives prefer to get paid a portion of their compensation in stock options here as the company evaluation goes up companies can create new shares to pay their executives this creates a couple benefits one D. executive won't pay any taxes on the compensation until they sell their stock which puts them in control of when they are taxed and second the company can report losses and form of salaries without actually losing cash since they can just create new shares they can legally report the loss but not lose the cash in essence they are printing their own money in form of shares to pay their executives.
Now getting paid in shares can also create another loophole for company executives to avoid taxes since they get paid in shares the executives can use those shares to purchase stock options which can be used to borrow money from an investment bank while using their shares as collateral this allows them to bypass the capital gains tax given them free money that they can need to repay later from their profits of using the money or handing over the shows themselves given them tax free money a good example of this is the lan musk into doesn't 17 he used about 40 percent of his own personal shares in Tesla as collateral for loans which at the time was amounted to over $4000000000 in Tesla shares used as collateral in 2019 he reportedly owes over $500000000 backed by his ownership in Tesla it is unclear what he used the money for but many say that he used this money to invest in these other companies I'm very interesting tricks that many wealthy corporations use are the use of shell companies which are companies that do not have a physical location don't have any products or any employees but are used to hold bank accounts where money can pass through to avoid being taxed a good example of this is the company apple apple reportedly had around $285000000000 heading off shore as an American company that does business internationally apple would have to pay US taxes from money that was made in other countries since the US is the only country that taxes based on citizenship the company would have to pay the taxes from the country it operates and and the rest would be paid to the US in order to complete the 21 percent but when there's a will and billions of dollars at stake there's a way apple decided to create a company in Ireland where corporate taxes are 12.5 percent then they create another company in the Netherlands and lastly we have another company in Ireland that has legal residency in Jersey an island off the coast of France that you guessed it has no corporate taxes.
So the company in Jersey who owns all the patents and all the intellectual property license the properties to the company in the Netherlands which is more of a bank account the company this company and another lance sub leases the property to the company in Ireland which is the company that takes care of their international operations this means that when someone buys an iPhone in Europe the money goes to the Irish company that takes care of the operations this money briefly flashes in the Dutch bank accounts before retiring back in Ireland since the company is legally registered in Jersey it cannot be taxed and that is how I shell company without a physical location or even any employees was used to transfer money tax free now believe it or not many countries will tax someone when they pass away this is what is called the state tax the death tax or the inheritance tax many wealthy people also call it did well in terror attacks because there are a few ways to easily avoid it one of the most popular ones is by using what is called a rat or a grantor retained annuity trust this is basically a trust fund which creates an irrevocable trust for a period of time which pays annuities and ones that trust expires the beneficiary receives all the assets tax free now it's something that many wealthy people do is reinvest their money back into investments to avoid the capital gains tax for example let's say that you sold a few real estate properties worth $500000 you can either pay the 20 percent capital gains tax will use this cash to reinvest in more property which allows you to grow your net worth tax free this is why many wealthy individuals do to create a massive wealth and avoid large tax liabilities they think that we use these $500000 to buy 5 more properties worth 0.$5000000 each let's see that in 30 years these properties are paid often have an appreciation value of $4000000 in the meantime you will only pay taxes on the passive income that your property generates which is usually between 15. 20 percent all while taking advantage of the tax laws the benefits real estate such as depreciation and mortgage interest at the end you could use the grants and the we explained earlier to transfer your wealth your kids tax free
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