"Bart, with $10,000, we'd be millionaires! We could buy all kinds of useful things like...love!" - Homer J Simpson

SavingAdvice.com Blog

Bridging the gap between saving money and investing

wealthy

How the Wealthy Avoid Paying Taxes in 2018

By Leave a Comment

How the wealthy avoid paying taxes for real

The more money you have, the more opportunities you have to make it earn more for you — and this has become more pronounced following the recent wave of tax reform. Here’s how the wealthy avoid paying taxes in 2018.

People in the highest income brackets get the most generous tax refunds under the terms of the Tax Cuts and Jobs Act. America’s top 0.1% earners got an average tax refund of $193,000, according to the Joint Economic Committee Democrats.

Estimates of the average refund for the upper echelon of earners keeps going up as the tax deadline approaches and more returns come in.

How the Wealthy Avoid Paying Taxes in 2018

Indeed, people in the top tax bracket received the highest percentage point cut in their taxation rate and also enjoyed the highest percentage increase in their after-tax income.

This added 2.5% to the wealthy’s net pay — on top of an already rich assortment of tricks they could already employ to dodge taxes — or at least whittle them down to size.

And if there were a need to double check tax returns filed by those commanding the biggest tax refunds, well, the Internal Revenue Service underwent yet another budget cut this year — interesting timing given how the agency has to contend with an unprecedentedly large number of changes this year. Apparently the agency has been steadily shrinking over the past decade.

Possibly Fewer Checks by the IRS

So it seems like the tricks that the wealthiest Americans pull to reduce their exposure to taxes might fly through unchecked and in ever greater numbers this year. One way or another, these strategies lower the amount of income that the rich have to declare to the IRS.

For instance, the wealthy might incorporate and pay themselves a salary at a smaller rate than what they were earning, thus putting themselves in another tax bracket.

They could make that compensation in the form of dividend income and then only have to pay tax at the capital gains rate of 15% to 20%. Or they could ratchet things down even lower by paying themselves with stock options that only get taxed when they’re exercised.

Changing Jurisdictions

Since the Tax Cuts and Jobs Act took away the ability to deduct state and local taxes from federal taxes, one way to offset this would involve relocating to a state that has no income tax — or possibly moving assets out of the country to places that combine low or no taxes plus secrecy of bank account information.

Complex Transactions

The ultra-wealthy tend to have access to the kind of sophisticated financial advice that might make it possible for them to enter into complex investment transactions like swaps. These are a type of derivatives in which cashflows associated with particular assets are exchanged between two parties who retain the original underlying assets. The two underlying assets are usually comparable, while the difference between the two cashflows might be that they have different tax consequences in different jurisdictions.

Get all of your tax questions answered with H&R Block’s Tax Information Center!

Estate Tax Exemption

Speaking of complexity, the size of the exemption on estate taxes — meaning the tax on inheritances — has been rising and some say it might even disappear by 2025. Although the exemption only applies to the passing of assets between spouses upon the death of one of them, the wealthy can try to sort out their children by setting them up with living trusts or even by giving them assets during their lifetimes. These tactics potentially reduce tax exposure for both parties.

Loan Arbitrage

Now this category gets even more complicated but the underlying concept goes like this: Technically the proceeds of a loan doesn’t count as income in the eyes of the IRS, so by borrowing against certain types of assets rather than selling them outright, you can tap into a source of cash without having to pay any tax on it. Of course, you have to repay loans so the trick here is to take a loan against a property you own outright and then rent it out at a prices that amount to the principal and interest you have to pay.

How the Wealthy Avoid Paying Taxes

The kinds of strategies that the wealthy use to avoid paying taxes or reduce the amount they pay comes from having access to more sophisticated resources than the rest of the population. This includes having the kind of economies of scale that make certain types of transactions more lucrative than they otherwise would be as well as being able to afford to hire the most talented professionals to provide advice.

Readers, how does learning about the tax strategies of the wealthy make you feel about your own financial situation? And what about your taxes — have you filed and gotten a refund yet?

Here's how the wealthy avoid paying taxes in 2018!

Read More About Taxes

Stay on top of all the tax changes this year — check out the following articles on the subject:

What Does It Mean to Be Rich?

By 6 Comments

what does it mean to be rich
Everybody wants to be rich. And there are many people in the world who certainly appear to have achieved it. What’s funny, though, is that I’ve never met a single person who says that they feel rich, wealthy, or well-off. (Granted, I’m not hanging with the Trumps, but neither am I talking about people who have a reason to feel “poor.”) When people talk about money, they’re either “struggling,” “barely making ends meet,” or, “getting by.” Yet if you look at the things they have, the homes they live in, and the cars they drive you to know that, unless they’re in debt up to their eyeballs, they are, if not rich, at least comfortable.

Personally, I consider myself well-off. Sure, I don’t have enough money to buy everything I want when I want it. I do have to budget and plan for big expenses. But compared to many people around the world and even in the U.S., I am well off. I have a roof over my head, a car to drive, money in the bank, and enough to meet my basic needs. I am rich in so many ways that it seems silly to me to say, “I’m struggling,” or “I wish I were rich” just because all of my recreational spending desires cannot be met instantaneously. I wouldn’t turn down a lottery win, but when I look at my life and my circumstances, I know that I am relatively rich, even if I don’t have millions in the bank.

So why do so many people think that they aren’t “rich” or “well off?” In the “first world” many people have so much more than many others even dream of. Even the “lower class” in the first world is exponentially better off than many people in the third world. So why this reluctance to feel rich? Most people go around saying that they aren’t rich and, worse, that they never will be.

I think it’s partly that our expectations are desperately out of whack. We’ve become conditioned by the media to think that only millions (or at least hundreds of thousands) of dollars in the bank counts as rich. We see the winners of giant lottery jackpots and say, “They are rich. I’m not.” We see celebrities and athletes getting paid hundreds of thousands of dollars per episode or game and say, “That’s what it means to be rich.” We see CEO’s and coaches who pull in millions even when they get fired and say, “That guy is rich.” Yes, they are wealthy. Yes, they can have almost everything they want. But wealth like that is not the norm and it’s often excessive. If your only definition of “rich” is to have as much money as those people, you’re not likely to ever achieve it.

We’ve lost the ability to simply look inside ourselves and our circumstances and say, “Hey, I’m doing pretty well.” Our objectivity is shot. We see excessive wealth in the media and think, “Hey, I’m nowhere near that, so I’m broke.” It’s like the size ten woman who feels overweight and unattractive compared to all the unrealistic six-foot tall size zero models in magazines. The comparison is all wrong because it’s not based on any kind of normal reality.

I think most people need a new, healthier definition of what it means to be rich. Maybe being rich simply means having enough to meet your basic needs with a little left over to save. Maybe it doesn’t mean enough to live in a 10,000 square foot house with a six-car garage. Maybe you can be rich in a 1,000 square foot house. I know some people who would likely admit that they are rich and they live in tiny houses. Maybe you can be rich and drive a used Chevy rather than a brand new Mercedes. Maybe you don’t need a house full of brand new, matching furniture to be rich, maybe you only need a bed, a few chairs, and a table.

When you’re tempted to say you’re not rich and never will be, stop and look around you. Do you have a roof over your head? Food to eat? Some extras? A little money in the bank? Then maybe you’re already rich. Stop and think about people who don’t even have that much. There are plenty of people who have far less than you. You might even be richer than you know if you’re fortunate enough to have plenty of non-monetary richness in your life. If you have a family that loves you, friends that care for you, pets that need you, your health, and/or a job that challenges you, you’re so far ahead of a lot of people in the world that you might as well be rolling in millions.

I think that if more people would adjust their expectations and realize just how “rich” they already are, a lot of the grasping, commercial craziness would stop, or at least slow down. When you already have a lot, you don’t need to buy more. When you can look around you and say, “Man, I am okay. More than okay, I’m doing well,” you feel much less need to try to keep up with (or become) the Jones’s. And that right there is a significant step to saving even more money and becoming even richer.

How Long Do Rich People Live?

By Leave a Comment

How Long Do Rich People Live?
Sometimes it feels like rich people may have won the metaphorical lottery. In addition to being wealthy, there is evidence that clearly shows that wealthy people are living longer as a direct result of their wealth.

Wealthy people have access to a number of resources that help them manage the risks in their lives better than those who are without those resources. Wealthy people have access to preventative medicine. Preventative medicine is one of the keys controlling the possibility of contracting illness that affect longevity. Going for regular check ups, having your eye health examined, and getting your teeth cleaned are some of the preventive care related tasks that the wealthy are able to manage with relative ease. Numerous health related surveys have shown that certain populations have a higher likelihood of hypertension, stroke, or diabetes-all known to either debilitate the person that these illnesses strike or even cause death in some cases.

Access to ongoing medical care is another way the rich are able to live longer. When they are struck by illness, they are able to go the doctor and manage their illnesses better. Wealthy individuals can purchase health insurance that provides access to experimental treatments, homeopathic care, and medicines that would otherwise be too expensive to purchase without insurance.

Wealthy people also seem to engage in fewer of the activities or habits that are considered to increase the risk of death such as smoking and excessive drinking. Smoking increases people’s risk of death by cancer or stroke. Excessive drinking has also been shown to increase death risk.

People who live in higher crime areas have higher rates of death due to violence at younger ages. Numerous studies have observed that having a lower income can adversely affect your life due to stress, health, and where you live.

Wealth enables people to proactively manage their health, plan for long-term care, and choose where they live. Proactive management of one’s health is an integral part of increasing the possibility of living a longer and healthier life. This is the unspoken benefit of being wealthy.

In 2010, the Affordable Health Medical Care Act, or Obamacare, was passed by Congress after a bitter battle concerning the bill’s cost to implement and manage across the 50 United States. Because of this bill millions of poorer Americans now have access to ongoing and preventative medical care. Preventative appointments covered by Obamacare include the following: prenatal services, some mental health related visits, and annual checkups that typically include: gynecological visits and more. Regardless of which side of the issue you find yourself, no one can argue that the number of people covered by some level of insurance has increased since the law’s implementation.

Many physicians, politicians, and advocacy groups are watching with great interest to see if having a comprehensive level of health care access makes a difference in longevity statistics and quality of life related measures over time. In order to measure the affect of the law accurately, it will likely take several years of data to create an accurate evaluation of the affect of the law on people’s longevity.

Related Articles:

Is LuLaRoe a scam?
What is the LuLaRoe Business Model?
What Does it Take to be a Successful LuLaRoe Consultant?
Commonly Asked Questions About Being a LuLaRoe Consultant
Is LuLaRoe Worth The Price?
Is LuLaRoe a Mormon Company?
LuLaRoe Startup Costs
Is LuLaRoe a Pyramid Scheme

S&P 500 and Dow Hit Record Highs While Less than Half of People Own Stocks

By 3 Comments

Dow hits 17000 and S&P 500 record high while less than half of people own stocks
As both the Dow Jones industrial average and S&P 500 index hit record highs, most of the nation doesn’t have much to celebrate. That’s because less than half of Americans actually own stocks these days, so there is no financial benefit to the recent records in the market. The Dow Jones industrial average surpassed 17,000 points for the first time last Friday, and the S&P 500 hit an all time high, but many are taking in the news with little more than indifference.

While stocks hit their records boosted by a better than expected June jobs report, the record highs aren’t creating a lot of buzz for the average American worker. That may at first seem surprising, but when looking at the data on who owns and doesn’t own stocks these days, it becomes more apparent why there isn’t more broad celebration going on with the latest records.

How bad is it? While as many as 21.3% of families directly owned stocks in 2001, that had shrunk to only 15% as of 2010, according to the Federal Reserve, in a 2012 report. Families do have access to stocks in other ways, such as through retirement accounts, but it still only lifts the number of Americans with stock ownership to about 50%. Even worse, it doesn’t look like many are going to be investing in the market anytime soon. At the beginning of 2014, 50% said investing money this year in the stock market would be risky, according to a Gallup poll.

Who’s benefiting from the latest run in stocks? The wealthy. A Pew research report puts the divide into perspective. The wealthy and educated are much more likely to be invested into the stock market than others. Households with earnings in excess of $75,000 have an 80% stock market investing rate, while 77% of those with a college degree have some money in stocks. This compares to a 15% rate of stock holders in households making less than $30,000 a year. In fact, most Americans are no longer in the stock market, with 53% saying they completely avoid the stock market in any form these days.

What this all means is that the stock market reaching new heights is only helping the personal finances of a certain segment of the nation, and not everyone across the board. While the record closes are great news for those who own stocks, it doesn’t make much of a difference to a majority of those living here these days. This could be why we aren’t seeing more interest in this record breaking run from the average man on the street — the record closes and new highs simply don’t matter because they have no impact on most people’s accounts.

(Photo courtesy of Michael Daddino)

What Does It Mean to Be Rich?

By 5 Comments

being rich
Everybody wants to be rich. And there are many people in the world who certainly appear to have achieved it. What’s funny, though, is that I’ve never met a single person who says that they feel rich, wealthy, or well-off. (Granted, I’m not hanging with the Trumps, but neither am I talking about people who have a reason to feel “poor.”) When people talk about money, they’re either “struggling,” “barely making ends meet,” or, “getting by.” Yet if you look at the things they have, the homes they live in, and the cars they drive you know that, unless they’re in debt up to their eyeballs, they are, if not rich, at least comfortable.

Personally I consider myself well-off. Sure, I don’t have enough money to buy everything I want when I want it. I do have to budget and plan for big expenses. But compared to many people around the world and even in the U.S., I am well off. I have a roof over my head, a car to drive, money in the bank, and enough to meet my basic needs. I am rich in so many ways that it seems silly to me to say, “I’m struggling,” or “I wish I were rich” just because all of my recreational spending desires cannot be met instantaneously. I wouldn’t turn down a lottery win, but when I look at my life and my circumstances, I know that I am relatively rich, even if I don’t have millions in the bank.

So why do so many people think that they aren’t “rich” or “well off?” In the “first world” many people have so much more than many others even dream of. Even the “lower class” in the first world is exponentially better off than many people in the third world. So why this reluctance to feel rich? Most people go around saying that they aren’t rich and, worse, that they never will be.

I think it’s partly that our expectations are desperately out of whack. We’ve become conditioned by the media to think that only millions (or at least hundreds of thousands) of dollars in the bank counts as rich. We see the winners of giant lottery jackpots and say, “They are rich. I’m not.” We see celebrities and athletes getting paid hundreds of thousands of dollars per episode or game and say, “That’s what it means to be rich.” We see CEO’s and coaches who pull in millions even when they get fired and say, “That guy is rich.” Yes, they are wealthy. Yes, they can have almost everything they want. But wealth like that is not the norm and it’s often excessive. If your only definition of “rich” is to have as much money as those people, you’re not likely to ever achieve it.

We’ve lost the ability to simply look inside ourselves and our circumstances and say, “Hey, I’m doing pretty well.” Our objectivity is shot. We see excessive wealth in the media and think, “Hey, I’m nowhere near that, so I’m broke.” It’s like the size ten woman who feels overweight and unattractive compared to all the unrealistic six-foot tall size zero models in magazines. The comparison is all wrong because it’s not based in any kind of normal reality.

I think most people need a new, healthier definition of what it means to be rich. Maybe being rich simply means having enough to meet your basic needs with a little left over to save. Maybe it doesn’t mean enough to live in a 10,000 square foot house with a six car garage. Maybe you can be rich in a 1,000 square foot house. I know some people who would likely admit that they are rich and they live in tiny houses. Maybe you can be rich and drive a used Chevy rather than a brand new Mercedes. Maybe you don’t need a house full of brand new, matching furniture to be rich, maybe you only need a bed, a few chairs and a table.

When you’re tempted to say you’re not rich and never will be, stop and look around you. Do you have a roof over your head? Food to eat? Some extras? A little money in the bank? Then maybe you’re already rich. Stop and think about people who don’t even have that much. There are plenty of people who have far less than you. You might even be richer than you know if you’re fortunate enough to have plenty of non-monetary richness in your life. If you have a family that loves you, friends that care for you, pets that need you, your health, and/or a job that challenges you, you’re so far ahead of a lot of people in the world that you might as well be rolling in millions.

I think that if more people would adjust their expectations and realize just how “rich” they already are, a lot of the grasping, commercial craziness would stop, or at least slow down. When you already have a lot, you don’t need to buy more. When you can look around you and say, “Man, I am okay. More than okay, I’m doing well,” you feel much less need to try to keep up with (or become) the Jones’s. And that right there is a significant step to saving even more money and becoming even richer.

(Photo courtesy of quinn.anya)

Related Articles:

Is LuLaRoe a scam?
What is the LuLaRoe Business Model?
What Does it Take to be a Successful LuLaRoe Consultant?
Commonly Asked Questions About Being a LuLaRoe Consultant
Is LuLaRoe Worth The Price?
Is LuLaRoe a Mormon Company?
LuLaRoe Startup Costs
Is LuLaRoe a Pyramid Scheme

Turning Financial Envy into Inspiration

By 8 Comments

ferarri

I think all of us have been guilty of financial envy at one time or another. “I wish I could afford a car like that” or “I wish we could live in a house like theirs.” It’s not as much of “Keeping up the Joneses” as it is simply envying the Joneses. If I see someone driving down the road in a new BMW I don’t run out and buy one to keep up with them, but sometimes I secretly wish I had one of my own.

Growing up and being poor or middle class can often lead to envy for those who are “rich,” “well off,” or “wealthy.” (I put those terms in quotes because they are relative.) And envy isn’t a positive thing. In fact envy often leads to a sour attitude. It can lead to distrust and dislike of a person, and in worse cases it can lead to hopes that that person fails at something. After all, if something goes wrong in their life, then you won’t have as much reason to envy them. Sounds rotten, I know, but some people actually think this way and I can bet most people have thought this way at least once in their lives (I know I have).

So how do you know if you have financial envy? Watch your attitude when you think people around you have more money or when they have nicer things. I used to be an administrative assistant at a real estate office and during the summer it always seemed like people were taking off early to go to their lake houses or go on their boats. They would come in with their “vacation” clothes on to take care of some last minute items and then drive off to their lake house in their convertibles. Meanwhile, I was stuck at work because I had no lake house or boat, I couldn’t afford to rent one, and didn’t even have vacation time to take off if I wanted to. When those people would say goodbye, I would mumble a goodbye and think to myself “must be nice!” My underlying attitude was envy and jealousy, which kept me from being happy for them and made my attitude sour.

Or I’d see a lady at Starbucks who was getting into her huge, incredible nice and decked out SUV with her latte in her well manicured hand, wearing the latest fashionable clothes. I’d drive by on my way home from work thinking about how it would be nice if I had unlimited money and no budget. I honestly have no idea if these people were wealthy or over their heads in debt. Frankly it’s none of my business. They choose to enjoy the finer things in life and I simply wasn’t able to at that time.

So what’s so wrong with financial envy? There is a proverb that says “Envy is rottenness to the bones.” Literally, envy can destroy you from the inside out. First of all, it keeps your focus on what you don’t have instead of being able to celebrate what you do have. That can make some people depressed, causing them to spend money they don’t have on things to make them feel better. Secondly, it can cause rifts in your relationships if you are secretly wanting your financially accelerated friend to fail. Beyond that, it simply doesn’t help you get any further financially.

The fact is that financial envy comes from the thinking and mindset that rich people are not nice people and they don’t deserve what they have. It may not be what you think consciously, but it’s a subconscious thought. Many times if you feel that you can’t ever have what that person has or become the kind of person they are, you will begin to dislike them so you subconsciously feel better about being different from them. And if you don’t like wealthy people, then you will do things that will prevent yourself from being wealthy because, after all, you don’t want to become one of “those people” that you don’t like. What we think influences our subconscious, which in turn very powerfully influences our daily decisions, which influence our life’s direction. It’s an interesting process and can be very positive or very negative.

While I do occasionally find myself envying people who have more money than I do (or at least appear to), I used to have a lot bigger problem with this. I always wished I could be rich and have all the money I wanted. I knew that wouldn’t make all my problems go away, but I thought it would certainly help. That envy wasn’t changing anything though. So I decided to get smart about my finances and get things in order. I read books and researched and found that if I make wise decisions and take care of my finances today, I can have tons of money later in life. If I work hard and invest and don’t waste my money, I’ll be able to afford a lake house and/or a boat someday. Not today, but someday. This revelation caused me to start looking at wealthy people differently. I’m no longer envious of people who have more than me; I’m actually inspired because I can be like them someday. It really helps me stick with my financial goals. Being able to buy those things isn’t the only reason I want to be wealthy someday, but they will definitely be an added benefit.

So now when I see someone leaving work to go to their lake house, I tell them to enjoy themselves and I find joy in the fact that some day I will be able to enjoy myself at mine, but it’s their turn right now. And when I pass a BMW or Mercedes or Lexus on the freeway, I don’t scowl at the person driving the luxury car; I look forward to the day when I will be able to drive one. But I hope when that day comes that people won’t be scowling at me!

Image courtsey of Corvair owner