We have 10 tips on how you can avoid paying taxes. Because for most people, paying taxes is such a drag, annoying, frustrating…
So today, we want to talk about how to avoid taxes and give you 10 legit and legal ways to do so.
So, this is a really important post because, it’s not just about avoiding paying taxes, it’s about developing a new mindset that will allow you to build long-term wealth.
Now in 2021, you start paying taxes the second you make over $9,875 a year as an individual.
And of course, that’s not enough money to take care of yourself. We mean, most people make more than that with their unemployment benefits.
But even then, taxes aren’t a big deal.
You usually don’t start feeling the impact of taxes on your income until you start hitting the 22% tax bracket or higher.
So let’s talk about how to keep more of your money.
The tax system can be simplified like this – the more income you make, the more taxes you pay.
So if you want to avoid paying taxes, then you usually have to figure out a way to reduce your taxable income.
And you want to do this in a way where, of course, you don’t go broke, but you delay your income for later.
And if you’re thinking that, “Man, there is no way I can delay my income. I need every dollar right now”, then read until the end because we have a really great tip for you.
Quick disclaimer: This is not financial advice and we’ll be making a few disclaimers throughout the post so that you can imply which ones may work for you and which don’t.
10 Tips On How To Avoid Paying Taxes
Tip #1: Become a Business Savant
It’s no secret that businesses have the most leverage when it comes to tax credits, tax deductions or tax write-offs.
Some of the richest people in the world do this. If they like to golf, then buy the golf club. And if they like to take a vacation, then they buy a resort.
Now, of course, that’s a joke and some extreme examples, but what we want you to do is think about your own needs and wants, and how they could tie into a business.
Now we know some people aren’t into business, but we would still encourage you to take a look into your passions, your skills, and what you do currently to make income…
…and see if you can mesh that into starting your own business.
So if you want to take advantage of massive business deductions, you have to join the party.
As the rapper Drake once said, “Everything a brother purchase is a write-off.”
Tip #2: Become an Investor
The golden rule when it comes to avoiding taxes is to delay as much income as possible. And most wealthy people don’t take cash unless they absolutely need it.
So if you start a business and it’s growing, you’re generating a lot of revenue.
Sure, you can pay yourself a lot of money, but guess what, you’re also going to pay a lot of taxes.
But here’s a big tip: Reinvested profits are not taxed!
For example, let’s say you make $100,000 profit and at the end of the year, you decide to reinvest $80,000 by buying equipment, or getting a property, or just doing a really big ad campaign.
You skipped a really big tax bill and potentially will make more money next year by doing that investment.
Now, of course, everyone’s salary requirements are different.
So we would encourage you the next time you think about your pay and budgeting to definitely consider the tax outcomes.
Because that can have nearly a 50% swing depending on your income.
Tip #3: Move Somewhere Else
Did you know that some countries have zero income taxes? If you use places like Dubai, Monaco, or the Bahamas as your primary residence then you don’t have to pay any taxes.
Not into changing your citizenship?
Well, there are other states that give you great tax benefits as well. For example, in Puerto Rico, you literally don’t have to pay any federal income taxes.
There are rich people who have moved to Puerto to avoid taxes and just tons of different YouTubers as well.
And there are other states that have no state income taxes such as Florida and Texas just to name a couple.
This is probably why there has also been a lot of people moving from California to Texas.
Tip #4: Make Charitable Donations
So, money that is donated to charity is not taxable.
This is usually why you will see very wealthy people donating a lot of their money to either their own foundation or someone close to them.
And at the same time, if you are a celebrity or something like that, it gives you a PR boost.
This is because most people don’t think about the tax benefits celebrities get from making donations. They just think about how nice and how much the celebrity cares.
Now the cool thing about having your own charity is that even these foundations, the 501(c)(3), have deductible expenses. Things they need to operate as a charity.
You can even donate land, vehicles, or other assets to a charity that you own, and it still counts as a charitable contribution.
And also, if you manage the charity then you can still use the same car that you donated on paper.
Tip #5: Max Out Your Retirement Accounts
Whether you are self-employed or not, putting your money into a retirement account like a Roth IRA or 401Ks shields your money against taxes.
The most common reason why people overlook retirement accounts is because:
- They have certain contribution limitations so it’s a slow and steady process.
- You can’t withdraw your money without paying penalties and taxes until you actually reach retirement age.
However, this still shouldn’t be overlooked because every little bit counts and goes a long way.
Tip #6: Take Equity Instead of Payments
As Beyonce once said, “Pay me in Equity.”
Why? Well, of course, equity and ownership can be worth more in the long term if the investment appreciates.
And two, of course as we mentioned, instead of taking a salary or cash payments right now…
…they can delay their income, avoid taxes and keep more of their wealth.
So think about how you can apply this right.
Like if you are in a position where you are working and you don’t need the cash for bills or lifestyle then maybe consider taking equity so you can avoid taxes.
Tip #7: Make Passive Income, Acquiring Hard Assets Part 1
So if you’re reading this post so far, and been thinking, “Man, I can’t delay my income.”
Or, “I don’t have the money or opportunities to use some of these tips so far” then this tip is especially important for you.
So let’s be honest. Avoiding paying taxes is a luxury of the rich.
Because they may have everything they already need.
But beyond that, most of the time, they have passive income or what some would call “mailbox money” that comes to them every month, without them having to actively work.
So how do you get passive income? Well, you have to acquire assets.
Now listen, even if you are not able to avoid taxes today or in 2022, or even 2025…
…you can still start right now, acquire assets, get passive income and eventually, be able to avoid paying taxes because of the next tip.
Tip #8: Take Passive Losses, Acquiring Hard Assets Part 2
So usually, when you acquire a hard asset like a piece of real estate, car, or business equipment, those things depreciate year after year.
And because of that, you can take depreciation, which will could actually give you a passive loss.
For example, you make $100 passive income, but you have $150 in depreciation. Then your tax report will show you had a loss.
This is one reason why people love real estate investing more so over stock investing.
The important thing to note here is that, you can only write off passive income with passive losses.
You can’t write off active income with passive losses.
Tip #9: Take Loans Instead of Cash
The reoccurring theme throughout this post is that you want to delay your income, especially if you don’t need it. This is why most wealthy people own a lot of assets but are cash-poor.
But what happens when you actually need cash?
Well of course, you can start selling off some of your stocks, or selling other assets you own.
But as soon as you sell, the moment that you cash out, you are going to pay taxes, which would be taking a step backwards when it comes to trying to avoid paying taxes.
Instead, consider taking out a loan against the assets you already own. And because the loan is not income, you won’t be tax.
In fact, you can get a tax deduction on interest payments as long as all this is through a business.
This is why wealthy people have such strong relationships with banks and lifetime relationships.
Tip #10: Acquire Art
Here’s something we would say that 99% of people don’t know. The art trade is the last major unregulated market in the world.
When you buy art, it can be a tax write-off. But that’s not where it stops right. That’s just the opening move in a game of chess.
Let’s say you earn $500,000 and decide to buy a $500,000 classic, one-of-a-kind painting.
Since the tax write-off matches the income, there is zero income to be taxed.
Let’s say 2 years go by, and the same painting you bought is now worth $1M dollars.
So instead of selling it for profit, because remember the moment you sell, there will be taxes…
You decide to donate it to an art charity that you personally own and manage.
That would mean you just save yourself $500,000 in nontaxable income. And that is all legal.
You can even take it a step further and instead of selling the art, do something like a 1031 exchange where you trade in the $1M piece of art and go up to buying a $1.2M piece of art.
So there you have it – 10 powerful tips that can help you avoid paying taxes.
We want to end with this, if you didn’t get everything all at once, that’s okay. As Albert Einstein once said, “The hardest thing in the world to understand is income tax.”
So feel free to go back and read this post again, take notes and figure it out all.
And you need more help with your taxes, whether you’re a business owner or an individual, our team can help you.
We have affordable tax planning, tax preparation, and tax resolution services that you can hire.