How To Not Pay Taxes Legally
And Get Richer 

Wonder how to not pay taxes legally - and in fact advance financially while doing so? We got you covered!

The richest Americans pay almost no income taxes. Whatever you may think of it, there is no question that, love them or hate them, no one enjoys paying taxes.

So, what if you could ethically and legally not only pay less taxes but actually use the same tactics that the rich use to acquire even more wealth in the process? Read on to find out more.

How To Not Pay Taxes Legally:
1) The Debt Strategy

Arguably the stop strategy that the rich have mastered on how to not pay taxes legally is using debt. Elon Musk doesn't pay any taxes. And the reason why he doesn't pay any taxes is because he is not a salaried worker. He technically doesn't earn any money. Therefore, he doesn't have to pay any taxes.

So how does he manage to be one the wealthiest man in the world if he “makes no money”? The wealthiest people in the world are asset rich, not cash rich. Assets appreciate in value and because of a pesky little thing called inflation, cash does not! It actually loses value over time.

So, how do the rich manage to have plush bank accounts and spend as lavishly as their hearts desire? Thanks to the help of the debt strategy, they borrow against their assets. That is taking out debt by going to the bank and getting a loan of any size they want, using their assets as collateral. It’s essentially cash-refinancing what they already own.

So, they take cash which is actually debt, and simply repay the loan, typically with very low interest. What’s more, this works especially well because they have the advantage of borrowing at low interest rates due to high credit rating and/or good leverage in negotiation.

Meanwhile their assets continue to grow at higher profit margin so that they are in effect making a profit by borrowing money through this debt, and this debt is tax free since debt is not income.

Yes, But Can The Average Person Do That?

Look at it this way: if you went out and got a loan to buy a home, you would not have to pay taxes on the amount you borrowed, i.e., the debt that you get from the bank. Likewise, if you refinanced the equity of your home, you would not have to pay taxes on the refinancing debt that you incurred because that money is debt you have to pay back – technically, it’s not income.

At the same time, the value of your real estate property would continue to accrue over time. And you could borrow against that if you needed more money.

This is a strategy that a lot of wealthy people use with the assets they own. The value of your assets appreciates and increases. And as that happens, you are able to easily borrow against those assets, as collateral. So, you get to put the debt proceeds - tax free - in your pocket and live off of this money.

Robert Kiyosaki, the author of Rich Dad, Poor dad, says that this is the strategy he used to become a billionaire through an educated use of debt. It’s what he considers “good debt”.

Most people are afraid of debt or cannot handle debt because of lack of financial education. Clearly, this warrants a word of caution because debt can come with an element of risk especially if not managed carefully.

One of the highest risks when fiddling with debt is over leveraging. This is when you take on more debt than you should and the value of your assets is either insufficient or somehow decreasing.

If you’re caught unprepared or don’t know what you’re doing, this can spell trouble. For the uninitiated, it’s a good idea to take on debt that you can handle and can afford to pay if worse comes to worst.

However, knowing what you’re doing could open the gates to untold riches if you apply this strategy competently.

How To Not Pay Taxes Legally:
2) Do Not Earn Taxable Income

For obvious reason, this next scenario is not easy to embrace for most people who rely on wages or a salary. Having one such stream of income puts a lot of restrictions on the possibility of implementing this strategy.

What you’re aiming to do here, and the way wealthy people work it, is having sources of income not based on earnings from work, but from assets and investments. This is why wealthy people sometimes forego earning a salary. No salary, no income that the IRS can tax!

That leaves the other sources of income, where your money is not automatically grabbed from you in various withholdings and taxes before it even reaches your hands.

If you own a business or run a side gig, you do not pay taxes on how much your activities bring in. You are taxed on how much of your income you get to keep after admissible expenses.

Again, this is a strategy that financially savvy wealthy people use often. If your profit and loss accounting ledger shows that, after all your expenditures are accounted for, you did not earn any money, then the IRS cannot tax you. Now, the key is, can you show that this was actually the case? You have to document everything.

This is infinitely easier to implement if you make money from investments, assets and self-employment. Even side gigs can help to some extent. Instead of owing a tax bill at the end of the year, you want to figure out the best way to reduce the amount you’ll owe by spending or reinvesting into your business enterprise, by buying relevant assets, by investing intelligently. 

You will see many businesses ramp up their spending the last quarter of each calendar year for that very reason. They want some discretion in how they will spend their surplus income before it falls into the hands of the IRS as taxes.

Now, if you have a business, surely you don't want to spend your money on taxes, but you don’t want to waste it on frivolous or wasteful spending either. You want to spend it in a way that will grow your business, only keeping in mind that if you don’t spend it, you’ll have a big tax bill that you’ll owe the IRS.

So, spend it in ways that will enrich you financially or personally in the future, such as equipment, seminars, advertising, classes, investments, self-improvement, etc.

How To Not Pay Taxes Legally:
3) Tax Write-Offs

The next thing that you can do to not pay taxes is to maximize your deductions. The idea is to find as many tax deductions and tax loopholes as possible. These are all legitimate and lawful provided that you can substantiate them. Hiring a tax professional to help your business with this task is probably to your advantage and will actually pay for itself with the tax savings you’re likely to make.

If you own a business, a side hustle, or you're an independent contractor, you ought to have ample opportunity for possible tax deductions.

Contrary to when you only earn your money from your job, as a business operator you get to write off expenses that you incur in the course of doing business and you only pay taxes on whatever is left.  This is in contrast to salaried work where you pay taxes first and then spend whatever is left.

How you earn your money determines what hand you are dealt tax-wise. Through the IRS’ policies, the government seeks to incentivize growth of the economy. It’s kind of a way to reward you for going out and taking a risk by starting a business or a side gig – which expands the business sector, hence the nation’s tax pool.

Many of the expenses you incur in the process of running your business are compensated by the government’s approval that allows you to deduct your expenses and pay less taxes.

We’re talking a wide range of expenses like assets purchases, business travel, commutes, supplies, associated utilities bills, business meals, office space, equipment, etc. The list is quite extensive.

Now, of course, all of these tax deductions have to be used in the course of doing business. They should be used to help grow the business. Also, you don't always get to deduct 100% of every dollar that you spend, which is why you want to make sure you speak to a tax professional before you go out and do this ineffectively.

The expertise of an experienced specialist can help you with issues like equipment, vehicle or asset depreciation write-offs. Although, it must be said that tax software like TurboTax have become extremely sophisticated for DYI tax filing. But even they offer access to tax accountants for complex tax itemization.

How To Not Pay Taxes Legally:
4) Long Term Capital Gains Investments

There is an investment strategy for how to not pay taxes legally. It is predicated upon holding on to investments for more than one-year minimum in order to qualify for long term capital gains rates.

Investments tend to be good tax breaks in general. Investing is also something anyone could and should do. Even starting with very small investments can do two things over time: develop the investing habit, and increase in size gradually.

Come to think of it, investing could be a side gig in and of itself, even for non-experts, provided that it involves substantial activity in size and scope.

Starting to get significant tax breaks may only happen when there is enough money involved, but as the Chinese philosopher Lao Tzu stated: “The journey of a thousand miles begins with one step”. To get anywhere, you must first… start!

How Does That Work?

Investments that you hold for less than one year do not qualify for capital gains tax breaks as far money earned strictly from investments. But the ones held for longer than one year do.

So, you made a $40,000 investment and held onto it for longer than a year and you sell it, you’ll have a $40,000 profit. You won't have to pay any long term capital gains rates because you're at or under the $40,000 threshold which has 0% tax rate.

And depending on the state where you live, you might not have to pay any state taxes. You don't have to pay any FICA taxes, which means at the end of all of this, you are left with $40,000. A salaried employee making the same $40,000 will have around $32,000 left after all withholdings from federal, state and FICA taxes.

Currently, as in 2023, capital gains tax rates are 15% for income above $40,000 ($41,676 to $459, 750 for single filers; $41, 676 to $258,600 for married filing separately; 83,351 to 517,200 for married filing jointly; $55, 801 to 488, 500 for head of household).

The highest bracket is 20% capital gains tax rate. So if you make a million dollars from investments, the most you're going to pay in taxes on that is 20%.

How To Not Pay Taxes Legally:
Investment Properties & Real Estate

The next thing that you can do is to buy real estate as an investment property. This is not real estate to live in but to rent out to somebody else.

This can be a key part of your strategy in learning how to not pay taxes legally, as real estate investments offer many tax write offs in terms of costs, expenses, insurance, maintenance, management fees, but also depreciation loopholes.

You get to pay nothing in taxes because you get to deduct a lot, including the value of depreciation of the property year after year, while you're still earning money and watching your property’s value increase. As the value of your property appreciates, you could again refinance it tax free and put spending money in your pocket.

Earlier, we discussed living off of debt proceeds. Real estate investors can do that as the value of their property goes up. They get to borrow against it and have cash in your pocket - as tax free debt.

They can also use this cash to invest in another property, create more income, get more tax deductions, and have more money in their pocket while paying less money in taxes legally – and safely, as long as they don’t over leverage debt.

How to get started?

So, you don't have the ability to go out and buy some real estate as an investment or start a business.

You can start a side hustle that’s manageable and where you can start implementing earning more money and taking advantage of some of these tax breaks.

And if you want to invest in real estate, first get the financial education as well as real estate knowledge you’ll need so that you don’t jump into something you know nothing about.

This leads to the next point. It is also related to real estate but this time, as an investment in the home where you live yourself. The government has programs for first-time Buyers, veterans and other categories of home buyers’ assistance. However, property value varies widely depending on where in the country you want to buy real estate.

While getting your first house can be very challenging, your geographical location can help you. In fact, the same applies even if you consider buying an investment property since you could research properties in more affordable parts of the country.

At any rate, selling the property that you live in after years of asset appreciation can earn you net profit that is tax free. This is one of the most profitable tax deduction and it is available to anyone provided that you live in your home for a minimum of two tears before selling it.

On this tax deduction, you are eligible to profit up to $250,000 as an individual or $500,000 if you are a married. The money gained is tax free and yours to do as you please, including starting a business or making a bigger real estate investment.

Ditto if you own a real estate property investment that has appreciated in value if you decide to sell it for a profit. You will not get the same tax deductions as a home you’ve lived in for two years, but if you choose to roll your profit into buying a bigger property, then all tax deferrals apply once again.

Can You Legally Use This Trick More Than Once?

Theoretically, you can do this at perpetuity, just deferring the taxes again and again, and increasing the value of the property significantly with each iteration. You never have to pay the taxes on this because you’re not dealing with the principal: you are incurring tax free debt, growing wealthy and achieving bigger cash flows.

Like-Kind Exchanges as they are known are the 1031 Exchange from Section 1031 of the U.S. Internal Revenue Code. This legal tax deferral allows you to flip “like-kind” real estate property to real estate property without having to pay taxes on the sale.

Thanks to this, you can just keep letting the value of your investment grow. You flip your property into a bigger property and let capital appreciation grow more. Then you flip it into another property.

This is one of the biggest tax breaks that wealthy people use to grow and compound their wealth, tax free. They invest in real estate and can keep flipping properties as property values go up. So can you! If you're investing in a good area where property prices are going up, you can flip your properties again and again and again.

So, you're growing your wealth and you're doing it completely tax free. And in the case of investment properties, while you're doing this, you're also growing the amount of money that you're making every single year as flipping into a bigger property enables you to get more rent. You're also getting bigger write offs and bigger depreciation tax breaks.

If you learn how to do this, you can keep increasing the amount of money you're making, and increasing the value of your property as well as your cash flow with tax free debt.

On Squarecubic you can acquire the financial education you need to make savvy financial moves.

Please keep in mind that financial education is not investment advice. This is an informational site. Always proceed with caution when investing or taking on debt and it’s always highly advisable to consult with a professional financial advisor or experienced accountant for complex financial maneuvering.

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