Rich people pay little tax by keeping money inside businesses and assets: they reinvest profit, deduct everything the business needs, take equity instead of salary, borrow against assets and use trusts. The argument is that the wealthy employ expensive accounting experts whose job is to minimize how much tax they owe, and that the same logic can be learned. The script opens with a line attributed to Albert Einstein: the hardest thing in the world to understand is income tax.
This is not financial advice. It is a summary of what the video says rich people use to grow their wealth, including some methods it calls shady, and the details vary by country and change over time.
Watch the full video here, or skip to the breakdown below.
The 15 methods at a glance
- Invest all of it (0:45)
- Everything you use is owned by a business (1:23)
- Move somewhere with little or no tax (2:20)
- Send it overseas (3:36)
- Charitable donations (4:10)
- Instead of a salary they take equity (5:00)
- Buying art (6:56)
- Multiple nationalities with no fixed residence (8:37)
- Gift money away (9:42)
- Hold it in privacy coins (10:37)
- You have no money but you have assets you can borrow against (12:06)
- Filing for bankruptcy (13:08)
- Claim your yacht as your second home (14:46)
- Using a trust to avoid paying estate tax (15:36)
- Depreciating assets on paper to outweigh the cash income (17:18)
1. Invest all of it
The rich do not sit on cash unless they need it for something specific. The rule offered here is that reinvested profit is not taxed.
If a company is about to make 5 million dollars in profit and, before the fiscal year ends, puts that 5 million back into the business, it owes no tax on it. This is how companies grow fast, and the owner’s net worth rises with little to no tax paid.
2. Everything you use is owned by a business
The second rule is to deduct everything. Money a business spends on things it needs to function is not taxable, so the company buys the car and you use it to run the company.
Items the video lists as deducted:
- Technology: laptops, phones, gadgets, hardware and software
- Travel, including hotels and flights for business trips
- A home office and utilities such as internet
- Health insurance premiums
- Even meals out
The more you can deduct, the less money is left to be taxed.
3. Move somewhere with little or no tax
People underestimate how much it changes your life to live where you are allowed to keep your money. The classic move is to make Dubai, Monaco, the Cayman Islands or the Bahamas your main residence, since these places have no income tax.
There is a catch. Moving is expensive, which is part of why the rich hold an unfair advantage. Living in Monaco costs a lot too, but if your tax bill is high enough, you can still come out ahead.
4. Send it overseas
The video says this is how Facebook, Google and Apple do it. They set up companies in Ireland, which owns the intellectual property. The US company then pays that Irish company a licensing fee every year, which creates a legitimate deductible expense at home.
Money leaves the US economy and lands in Ireland, where, with more optimization, the rate paid is around 1% or lower. With a home in a low-tax country, you can set up a local company and invoice your US subsidiary for services. The script adds its own twist on fines and taxes: a fine is a tax for doing something wrong, and a tax is a fine for doing something right.
5. Charitable donations
Money donated to charity is not taxable, which is why many rich people own a foundation. The script argues the state is a poor manager of money, so a foundation lets you make sure it has a positive effect on your community.
It gets more interesting: foundations have deductible expenses too, since they need things to function. You can donate land, vehicles or other assets to a charity you own and still count it as a contribution, even if, as head of the charity, you keep using the car.
6. Instead of a salary they take equity
The reasoning is twofold. Equity may rise in value, and equity is not taxed unless you sell it. This is credited with how quickly Elon Musk got rich: instead of a salary, he receives newly minted stock based on company performance, and with Tesla public his net worth climbs.
The point is that wealth is rarely a pile of cash. Many wealthy people hold ownership, not paychecks.
7. Buying art
The claim is that the art trade is the last major unregulated market. Buying art counts as an expense, so if you earn 1 million dollars and buy a 1 million dollar painting, there is nothing left to tax.
Three years later an appraiser values it at 6 million. Donate it to a museum or your own art foundation and you take a 6 million dollar deduction, saving a further 5 million of income from tax if you still earn 1 million a year. Or sell it at 6 million and put the entire amount into more art, and the 5 million profit goes untaxed. All of this is legal, according to the script.
8. Multiple nationalities with no fixed residence
The script calls this the shadiest and most confusing item. You owe tax in your country of residence, so what if you have none? Some very wealthy people own homes around the world but claim no home country, giving a proof of address from a property in a place like Thailand or Bhutan, in another language and under a government that will not share information.
Others buy a large yacht as a primary home, parked off Monaco one day and in international waters the next. More than one nationality is recommended for the passports, though going fully off the grid is not seen as a long-term solution.
9. Gift money away
Gifts under a cap are not taxable. The cap is given as 15,000 dollars per gift, below which you do not need to tell the IRS.
That sounds small for the very rich, but there is room to maneuver. As of 2021, it says, the lifetime gift exemption in the US is 11.7 million dollars, as long as each gift stays under 15,000. A lot of Rolex watches, in other words.
10. Hold it in privacy coins
Crypto changes wealth transfer and security: you can put a billion dollars on a stick and fly to Singapore. Bitcoin and Ethereum are heavily regulated, with transparency measures that link wallets to individuals. Profits from selling crypto, it adds, are taxed at 10% in most countries.
Privacy coins are a different breed. They can be exchanged, stored and moved anonymously. They are not illegal, but their legality depends on the jurisdiction, and the belief behind them is that money made legally should be spendable without third parties watching.
11. You have no money but you have assets you can borrow against
Many rich people are wealthy but cash poor. Taking cash out of a business means paying tax on it, so they leave it in stocks and assets.
When they need cash, they go to the bank, point to the cars, assets and stocks, and ask for a loan. A loan is not income, so there is no tax, only repayment. If it all runs through a company rather than a person, the script says this arrangement can continue for lifetimes.
12. Filing for bankruptcy
Bankruptcy is expensive and tiring, unless you are rich and know how to handle it. The example is a lawyer earning 250,000 dollars a year who owns a 1 million dollar house and has 1 million saved. He buys a 10 million dollar office building through a company, putting 1 million down and borrowing 9.
A pandemic empties the building and its value falls to 5 million. Because the company owns it, he files for bankruptcy. He loses the building and will struggle to work with the bank again, but the house and his wages are protected. Here is the difference between broke and poor. Pay cash instead and the loss would still count as a deduction against future income.
13. Claim your yacht as your second home
Governments favor homeowners and resent big spenders, and the script notes that tax-the-rich is still trending online. So the wealthy claim their yachts as second homes to get better rates.
It is a holiday home when they sail to Mykonos in summer, and as long as the boat has sleeping, cooking and toilet facilities, the IRS treats it as a second home. Motor homes work the same way, though few super-rich buy them.
14. Using a trust to avoid paying estate tax
The video says the estate tax can take up to 45% of the wealth you pass to your children, and that the US counts you as rich for this purpose above 11.7 million dollars. Below that, there is no estate tax or it is considerably lower.
The rich structure wealth in trusts. Once something is in a trust, provided conditions are met, it no longer belongs to you and is outside your estate. You keep control while alive, and you can set rules so children get gradual access, say at 25 or after graduating.
15. Depreciating assets on paper to outweigh the cash income
Accounting is the language of money. Depreciation lets a business write off the cost of an investment such as a car or machine, spread across its useful life.
Buy a factory for 10 million dollars to make face shields for ten years and its value falls by 1 million dollars each year on paper. Earn less than 1 million a year selling face shields and there is no profit left to tax. Equipment, vehicles and offices can all be depreciated this way.
You are under no obligation to pay more tax than is legally required.
Bonus: taxes are high because of inefficiencies
The closing argument is that everyone is willing to pay a fair share; the problem is how the money is managed. Swiss people accept high taxes because, as the video tells it, education and hospitals are free and good and the environment is clean. Compare that with places where spending goes to bribes and broken roads.
Its prediction is that blockchain could let people direct their taxes to causes they choose, such as a neighborhood school, through transparent smart contracts, and it expects the way taxes are paid to change this decade. That is an opinion, and a contested one.
FAQ
How do rich people legally reduce their taxes?
By reinvesting profit, deducting business expenses, taking equity instead of salary, donating through foundations, borrowing against assets and using trusts and depreciation, according to the video.
Why do rich people take equity instead of a salary?
Equity can grow in value and is not taxed until it is sold. The video points to Elon Musk’s pay in Tesla stock as the example.
What is the difference between being broke and being poor?
The video says a rich person can be broke on paper, with zero or negative net worth after a bankruptcy, without being poor, because their assets, income and know-how survive.
How does a trust avoid estate tax?
Assets held in a trust, once conditions are met, are outside your estate for inheritance tax purposes, so they are not counted when you pass wealth to your children.
Is any of this financial advice?
No. The video says it is only describing what it has seen the rich do, and tax rules differ by country and change, so check with a qualified professional.
Keep reading
- 15 Ways Rich People Avoid Paying Taxes
- 15 Ways Rich People Prepare for World War 3
- 15 Ways Rich People Go Broke
