10 Debt and Tax Tricks RICH PEOPLE Use for Wealth Strategies

Have you ever wondered how the wealthy seem to sidestep the IRS, legally, while the rest of us scramble through tax season? If so, you’re not alone. The rich don’t just have money; they have access to debt and tax tricks that create a financial cushion that’s hard to penetrate. 

So, buckle up as I expose some of these wealth secrets. Spoiler alert: by the end, you might feel like the ultra-rich have a totally different financial rulebook than the rest of us—and honestly, they kind of do.

1. The Ultimate Tax Hack: Buy, Borrow, Die

Let me start with something that'll blow your mind – one of the most powerful ways billionaires avoid taxes. It's called the Buy, Borrow, Die strategy, and it's completely legal.

Here's how it works: 

Rich folks buy assets that grow in value, borrow against them instead of selling, and hold onto them until they pass away. The genius part? Their heirs get what's called a "stepped-up basis," meaning the asset's value resets when inherited. Translation? Zero taxes on all those gains!

And guess what? You don't need to own a mansion to use this tax-free wealth strategy. Even a single rental property can get you started. It's one of those brilliant tax loopholes for the rich that's actually available to everyone – they just don't want you to know about it!

2. Private Placement Life Insurance 

Ever heard of private placement life insurance? It’s a type of insurance policy that allows them to invest in stocks, bonds, and even private equity—within the insurance wrapper. This keeps the growth tax-free. 

So, while the rest of us pay taxes on investment gains, they’re building up wealth tax-deferred. While the ultra-wealthy use fancy versions of this, there's good news – you can get similar benefits with whole life or indexed universal life insurance policies.

Think about it: your money grows tax-free, and you can borrow against it without triggering taxes. Now that's what I call smart money management!

3. Retirement Account Advantage

While they're investing in pre-IPO stocks making millions tax-free, you can still use your Roth for growth stocks or crypto, enjoying those same tax-free benefits on a smaller scale.

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4. The Charitable Foundation Trick

One of the smartest tax avoidance strategies the wealthy use is setting up charitable foundations – think Clinton Foundation style. But here's something you can use: Donor Advised Funds (DAFs). 

You get the tax deduction now while spreading out your giving over time, and your money grows tax-free while you decide where to donate.

5. Real Estate Depreciation 

Did you know that real estate investors get to depreciate property over around 27.5 years? 

When you own a rental property; you can deduct a portion of its cost every year, even if it’s rising in value. This depreciation can add up, creating what we might call a tax loophole for wealthy property owners. 

Imagine getting paid to lose money (on paper) while your property actually increases in value! Depreciation, in short, is a silent workhorse in wealth strategies that helps keep taxable income low.

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6. The Carried Interest Advantage

While this specific strategy might be out of reach for most, here's the takeaway: focus on creating capital gains rather than regular income. They're taxed at a lower rate, and when combined with borrowing strategies, can create tax-free cash flow.

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7. Choosing Their State of Residence Wisely

Here's another gem from the wealthy's playbook of tax loopholes: Opportunity Zones. 

Where you live can make a big difference in how much tax you pay. Wealthy individuals often choose to reside in tax-friendly states like Florida, Texas, or Nevada to avoid state income taxes. It’s a smart tax strategy that can save them tens of thousands of dollars annually. 

It’s also a reason why some wealthy retirees pack up and head to sunny places like Florida—not just for the weather but for the tax savings. By investing in designated areas, they can reduce or delay capital gains taxes. 

8. Family Limited Partnerships

Want to know how the rich pass down wealth without the tax hit? Family Limited Partnerships (FLPs). 

“Parents or grandparents can pass on assets while claiming legal discounts helping to preserve family wealth across generations”- Matt Theriault

While these are complex, the principle of using legal entities to protect and transfer wealth applies to everyone. Even smaller estates can benefit from similar structuring strategies.

9. The "Defective" Trust

One of the most interesting tax strategies is the Intentionally Defective Grantor Trust (IDGT). Yes, it's actually called "defective". 

Trusts aren’t just for the ultra-rich, but they’re definitely a favorite tool in wealth strategies for those looking to pass down assets without burdening heirs with massive tax bills. They allow the wealthy to dictate how their assets are managed and distributed, all while minimizing estate taxes. 

There are many kinds of trusts out there, from irrevocable to living trusts, and each has its advantages. For instance, some trusts remove assets from the taxable estate, which is a major tax avoidance strategy. 

10. The Income Timing Game

Last but not least, let's talk about how the wealthy manage their earnings with Deferred Compensation Plans. While these exact plans might not be available to everyone, you can use tax-deferred accounts like 401(k)s and IRAs to achieve similar benefits.

Make the System Work in Your Favor

These debt and tax tricks aren’t some far-off tactics; they’re accessible if you know where to look and what to ask about. The wealthy aren’t getting away with anything illegal or shady—they’re just leveraging a knowledge base that most people don’t tap into.

But remember, before you try any of these tax avoidance strategies, it’s always a good idea to seek professional advice. And if you’re serious about building wealth, especially in real estate, consider resources like Hire My Call Porter and Seller Sniper. 

With the right support and a bit of know-how, you’ll be well on your way to making the same rules work for you.