Rich people reduce taxable income by utilizing legal strategies that prioritize asset growth over salary, such as holding appreciating assets to avoid capital gains taxes, borrowing against those assets for cash flow ("buy, borrow, die"), using tax-advantaged accounts (401k, IRAs), and investing in tax-exempt municipal bonds. They often use pass-through entities (LLCs, S-corps) to reduce liability and rely on long-term capital gains taxed at lower rates (0-20%) rather than high income tax rates.
Use tax-reduction strategies like expanded SALT deductions and vehicle loan interest deductions, as well as smart timing around stock options, to avoid the alternative minimum tax, or AMT . Optimize investment taxes via tax-loss harvesting and timing mutual fund investments to avoid increasing taxable income.
We thought Michigan residents might be interesting in learning how Facebook founder Mark Zuckerberg and several company insiders are using a legal tactic called a “grantor-retained annuity trust” to avoid paying hundreds of millions of dollars in estate and gift taxes on their Facebook shares.
Grantor Retained Annuity Trusts (GRATs)
A GRAT is an irrevocable trust designed to shift future asset appreciation to beneficiaries, typically children, with minimal gift and estate tax liability. The grantor contributes assets into the GRAT and in return receives a series of annual payments for a specified term.
Buy, Borrow, Die Strategy
First, they acquire appreciating assets like stocks or real estate. Instead of selling these assets when they need cash (which would trigger capital gains tax), they borrow against them at favorable interest rates. Since loans aren't considered income, no tax is owed.
The Bezos $2.7 billion income tax payment, Liu noted in her Forbes analysis, represented only 4.5 percent of the 2024 increase in his personal net worth — approximately $60 billion — and barely more than 1 percent of his overall $230 billion net worth. Props to Liu for her reporting.
In some years, billionaires such as Jeff Bezos, Elon Musk and George Soros paid no federal income taxes at all. Billionaires avoid these taxes by taking out special ultra-low-interest loans available only to them and using their assets as collateral.
Googlers call Zuckerberg's approach the 80 percent rule
She calls this idea the 80 percent rule. It states you should schedule only about 80 percent of your days. Leave 20 percent open to absorb whatever craziness comes up.
Warren Buffett
Buffett is currently worth $136 billion (£107bn). One of Buffett's most famous quotes is about not leaving his vast fortune to his children: "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing".
The IRS 7-year rule primarily applies to keeping records for claiming a deduction for bad debts or losses from worthless securities, allowing a longer period to file for a credit or refund, but it's not a universal audit limit; it's often a recommended safe buffer for general record-keeping, with the standard IRS audit period usually being 3 years, extending to 6 years for substantial income omission (over 25%) or foreign income issues, and indefinitely for fraud.
To avoid the 22% tax bracket (or any higher bracket), focus on reducing your taxable income through strategies like maxing out 401(k)s and HSAs, deferring bonuses, tax-loss harvesting, smart charitable giving, and strategic asset location, understanding that higher rates only apply to income within that bracket, not your entire income.
Yes, $70,000 a year generally falls within the U.S. middle-class income range, but it depends heavily on location and household size, often sitting at the lower end of middle income, especially in high-cost areas where it might even feel lower, while in lower-cost areas it could offer a more comfortable middle-class lifestyle. The Pew Research Center defines middle class as two-thirds to double the national median household income, which puts $70k right around the median itself, making it squarely middle-class nationally but varying greatly by zip code.
The "20k rule" refers to the traditional IRS threshold for reporting income from payment apps and online marketplaces on Form 1099-K: over $20,000 in gross payments AND more than 200 transactions in a calendar year. While a law (the American Rescue Plan) temporarily lowered the threshold to $600, recent legislation, the One Big Beautiful Bill Act (OBBBA) (OBBBA), has reinstated the $20,000/200-transaction rule for tax years starting in 2025, providing relief for casual sellers and gig workers.
What is a 1099-K form? IRS Form 1099-K is a tax document that reports any payments you received through third-party networks like Venmo, PayPal, or Apple Pay. If you receive more than $20,000 in at least 200 transactions through these platforms, you'll likely get a 1099-K.
Getting Form 1099-K from eBay
If your sales hit the payment threshold, eBay must prepare and send 1099-K copies to the IRS and to you by January 31 of the following year. IRS 1099-K payment reporting thresholds by year: $5,000 in 2024. $2,500 in 2025.
The IRS can generally levy any account in your name for unpaid taxes, but some funds are protected, like certain disability payments or Social Security (though some can be taken), and funds in an irrevocable trust or accounts not directly in your name (like some business or trust accounts) are harder to seize. Certain income sources are never taxed, like some veterans' benefits, child support, and welfare, but these aren't usually held in traditional bank accounts. The key is that the IRS targets your assets for your tax debt, so protecting funds by legally changing ownership or ensuring they are designated as non-taxable income is how they become untouchable by levy.