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5 Ways Rich People Pay Little to No Taxes

If you search for this kind of information on the web, you’ll read about maxing out your contributions and so on, but that’s not really what you’re looking for, is it? Albert Einstein said it best: The hardest thing in the world to understand is the income tax! The rich have very expensive accounting experts that help them minimize just how much money they pay in taxes.

Write all of these down because you don’t know when this information will come in handy. This isn’t financial advice, this is just what I’ve seen the rich use to grow their wealth and I believe it’s valuable for you to know about it too. Below are 5 Ways Rich People Pay little to no taxes.

Afrobarometer survey: We want to pay more taxes - Ghanaians – Dailymailgh 


1. Invest All of It

The rich don’t sit on cash unless they need it for something specific. Here’s the golden rule when it comes to paying taxes: Reinvested profit is not taxed! If your company was about to make 5 million cedis in profit and before the end of the fiscal year you choose to invest those 5 million back into the business in order to grow it even more, you don’t have to pay taxes on the 5 million. That’s how companies grow quickly. As the owner of the business, your net worth goes through the roof, with little to no tax to be paid.

 

2. Everything You Use Is Owned By A Business

The second golden rule of tax optimisation is: DEDUCT EVERYTHING! Here’s the thing, if a business needs anything to function, the money you spend isn’t taxable. You want to buy yourself a new car? Well, the company needs the car as well, so allow the company to buy it on the company’s dime and you get to use it since you need it to run the business.

Here are some things rich people deduct: Any type of technology (hardware, software etc.) laptops, phones, gadgets, they’re all needed for the business. Travel - Hotels and flights are needed for business trips. Home, office & utilities like the internet, health insurance premiums, even going out to eat is a deductible expense. The more things you can deduct, the less money there is to be taxed.

 

3. Charitable Donations

Third rule of taxes: Money donated to charity is not taxable! This is why every rich individual owns a foundation of sorts. In their defence, the government has always proven to be a poor manager of money, so instead of giving it the money to do with it as it pleases, you’re better off using a charitable foundation to make sure your money actually has a positive impact on your community.

Where things get interesting, is that even these non-taxable foundations have deductible expenses. They need things to function. You can even donate land, vehicles or other assets to a charity you own and it still counts as a charitable contribution. (also, as the head of the charity group, you can still use the same car that you donated on paper).

 

4. You Have No Money But You Have Assets You Can Borrow Against

Here’s why most rich people are super-wealthy but cash-poor; in order to take cash out of your businesses, you need to pay taxes on that money, so rich people choose to never take their money out. Just leave it as stocks or assets. But there are situations where you need some kind of cash. That’s where the relationship you have with your bank comes into play. Rich people walk into banks and say: Look at how much stuff I own, the cars, the assets, the stocks. I’m good for the money if it comes to it, so gimme a loan.

The bank looks at the portfolio and gives wealthy individuals access to quick cash anytime they want. Since this is technically a loan they take, this isn’t their money, so they’re not required to pay tax, just to give it back. If all of it happens through a company and not from an individual perspective, this mutually beneficial relationship can go on for generations.

 

5. Depreciating Assets On Paper To Outweigh The Cash Income

Accounting is the language of money so if you want to be rich, you better learn how to speak it, or at least understand it. In simple terms: Depreciation is a deduction that enables a business to write off the cost of the investment it buys, be it a car, a machine and so on. It’s spread out for the life of the investment. The reason behind spreading deductions for the cost of property is to enable a business to be in a position to replace the property at the end of its life.

Now let’s say you buy a factory for 10 million cedis and intend to use it to make those ugly looking face-shields for the next 10 years. From an accounting perspective, every year, the value of the factory will be depreciating by GH₵ 1 million. If you make less than GH₵1 million per year from selling your face shields, there is no profit left to tax. Equipment, vehicles and even offices can be depreciated from an accounting perspective allowing you to keep paying less and less tax.

If people knew how to optimise their money, their businesses would grow at much faster rates, allowing them to hire more people and create better products. You are under no obligation to pay more taxes than is legally required. Taxation was meant to help the poor, but since everything is privatized and optimised for profit it doesn’t work the way it was intended.

 

Thanks for reading. See you in the next article.

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Albert Einstein All of It

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