There are a lot more taxes than the federal income tax. It happens to be one of the most progressive taxes. Anyone focusing on that and ignoring all the others is trying to scam you.
It is also true for many “normal” one percenters. For example there is a service for incorporated anesthesiologists where you tell them where you plan to go on vacation and what dates, and they create a bullshit anesthesiology conference, including the brochure and other artifacts, that meet the letter of the law IRS definitions for a valid business expense. None of this stuff ever hits AGI.
Anyone can borrow money against their stocks, house, or credit card. It's tax-free as well.
> They can do schemes like borrowing against equities and using the tax-free cash for expenses or purchasing other assets.
Um, borrowing money is not "income". You have to pay it back, with interest.
UHNW individuals can borrow until they die. Their assets pass to their heirs with a stepped up cost basis. The heirs can liquidate whatever's needed to pay off the loan and incur no tax.
Normal people can't do this. If I die owing money, my creditors will take it out of my estate before it passes to my heirs. UHNW estates can be structured differently and creditors can accommodate different payment terms (get paid second) because they know the money's there, and it saves taxes.
You can also read: https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...
I might have gotten some things wrong. Or maybe the poster has.
LOL, the stepped up basis gets hit with the inheritance tax.
> The heirs can liquidate whatever's needed to pay off the loan and incur no tax.
The loan and the interest payments and dont forget the inheritance tax.
> Normal people can't do this.
Yes, they can borrow money, die, the inheritors pay off the loan with the stocks, and then pay estate tax.
I assumed you asked a question to learn something. If you're not interested in learning, please continue believing that everyone gets the same tax system. Otherwise keep reading.
> the stepped up basis gets hit with the inheritance tax.
There's no federal inheritance tax. Only some states have it. You're thinking of the estate tax.
If you read the link I posted: https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...
it has a fairly detailed explanation of how it's a completely different ballgame above a net worth of $300m. Grantor trusts allow sidestepping estate tax and...
> The loan and the interest payments
"The loan" otherwise known as "income" because that's what it really was. Income that would normally have been derived by selling assets. Obviously it has to be paid back. No one said it's free money. Only that it's (largely) tax-free money.
The interest payments are lower than the income tax would've been on the same amount of income.
> and dont forget the inheritance tax.
You mean estate tax. Explained above.
> Yes, they can borrow money, die, the inheritors pay off the loan with the stocks, and then pay estate tax.
Not in the same way, and not nearly as effectively.
If there are specific inaccuracies with https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26... I'm open to learning.
They're the same as far as this discussion is concerned, as the amount that the beneficiary gets is (roughly) the same.
> "The loan" otherwise known as "income" because that's what it really was
Borrowed money is not "income" in any sense of the word. When I was on summer vacation, I decided to take a class in accounting. One of the most productive uses of my time. I recommend it. P.S. if your business tries to classify borrowed money as "income", that's called fraud.
> If you read the link I posted
I rely on my CPA for tax advice, not the internet, nor do I care much for misusing accounting terms. I've read too many articles that confuse income with revenue, wealth with income, and so on.
The estate's value is reduced by what it owes.
> if your business tries to classify borrowed money as "income"
sigh C'mon man, engage in good faith here. Stop saying things I didn't say.
If you can borrow cash against assets, don't have to pay principle until you die, and only pay low interest payments then it's functionally the same as selling those assets at a low tax rate. That's the principle.
And if you can use trusts to avoid estate taxes then there are no (or very low) taxes due ever.
> I rely on my CPA for tax advice
Ok ask your CPA what they know about using trusts to avoid estate taxes. Maybe it's BS but maybe it's true. Without some curiosity, how will you ever know?
> not the internet
More reputable sources than Reddit indicate it may be possible to use trusts to greatly reduce or eliminate estate tax:
https://privatebank.jpmorgan.com/nam/en/insights/wealth-plan...
https://www.investopedia.com/terms/g/grat.asp
https://www.fidelity.com/learning-center/personal-finance/wh...
It's a progressive system overall - but it wasn't designed for the purpose of wealth redistribution, hence the payroll tax ceiling.
* More precisely, their monthly benefit at full retirement age increases by 90 cents for each additional dollar of pre-retirement average monthly earnings, whereas yours only increases by 15 cents.