Billionaires Avoid Taxes on an Epic Scale. Here’s How.

Last June, drawing on the largest trove of confidential American tax data that’s ever been obtained, ProPublicaLaunched a series of storiesDocumenting the key ways that the ultra-wealthy are able to avoid taxes. Strategies that are almost impossible for most taxpayers. To mark the first anniversary of the launch, we decided to assemble a quick summary of the techniques — all of which can generate tax savings on a massive scale — revealed in the series.

1. The Ultra Wealth Effect

Our first story reveals how billionaires such as Elon Musk, Warren Buffett, and Jeff Bezos became billionaires. were able to amass some of the largest fortunes in history while paying remarkably little taxThey are incredibly wealthy relative to it. They did this partly by not selling off their large stock holdings. Income is taxed by the U.S. system. They can’t sell stock, which generates income. Borrowing against their wealth is a way for billionaires to tap into their wealth. And borrowing isn’t taxable. (Buffett said he followed the law and preferred that his wealth go to charity; the others didn’t comment beyond a “?” from Musk.)

2. The $5 Billion IRA

We discovered that billionaires use less conventional methods to avoid earning income. Peter Thiel, tech mogul, amassed a $5 billion Roth IRAThis account shields income from tax and helps low- and middle-class savers to prepare for retirement. Thiel placed low-value shares of the company that would become PayPal in the account back in 1999. Tax lawyers warned that this could put the account at risk of violating IRS rules. (It’s not clear if the government ever challenged the move.) He set himself up for billions in untaxed earnings. (Thiel did no respond to questions about the original article.

3. The $1 Billion Parlor trick: Making High-Tax Trading into Low-Tax Income

Even though tech billionaires may show income on their tax returns, they tend to pay relatively low income tax rates. That’s because of the type of income they have: Gains from long-term investments, such as from stock sales, are taxed at a lower rate. But what do you do if you’re making over $1 billion every year, and it’s largely from short-term trading? Do you just accept that you’ll pay the higher rate on all that income? As we reported this weekJeff Yass, the head of one of Wall Street’s most profitable firms, didn’t accept this fate. His firm, Susquehanna International Group, instead found creative ways of transforming the wrong kind of income into the correct type. It generated tax savings exceeding $1 billion in just six year. (Susquehanna declined comments, but in a case that involved similar allegations, it maintained it complies.

4: The Magic of Sports Ownership – Make Money while (Legally) Reporting Losses

The tax code provides business owners with a variety of ways to eliminate income through deductions. None are more amazing than buying a sports teamAs Steve Ballmer, former Microsoft CEO, did with the Los Angeles Clippers. It doesn’t matter whether the team is actually profitable and growing in value. It can still be a writeoff. (In some cases, we found, owners could effectively deduct a given player’s contract not once, but twice. They’re allowed to take deductions comparable to those for factory equipment that loses value as it ages, even as teams almost inevitably gain in value.) That’s one reason owners tend to pay far lower tax rates than the athletes they employ, or even the people serving beer in the team’s stadium. We found a Clippers arena worker making $45,000 per year who paid a higher tax rate that the billionaire Ballmer. Ballmer claimed that he pays all taxes he owes.

5. Build, drill, and save: Real Estate and Oil Businesses can both be tax Havens

Certain industries, such as oil and gas or real estate, offer tax breaks that are so abundant that billionaires have taken advantage of them. can erase their income entirely even as they grow richer. That’s how real estate developer Stephen Ross (who also happens to own the Miami Dolphins) went 10 years without paying any income tax. Ross said he followed the law. Another mogul, this one from the oil industry, was able to. tap a near bottomless well of write-offs via one of the biggest oil spills in history. (The mogul’s representatives did not respond to requests for comment.)

6. Even a Billionaire’s Hobbies Can Pay Off at Tax Time

Deductions from hobbies and side projectsThe ultra-wealthy have another option: a company structure called a corporation. For some billionaires, it’s race horses: We found that six owners of thoroughbreds at the 2021 Kentucky Derby had taken a combined $600 million in tax write-offs on their horse racing operations. For others, like Beanie Babies founder Ty Warner, it’s luxury hotels. The billionaire spent a few of the Four Seasons’ most iconic locations, and then went 12 consecutive years without paying income tax. Warner representatives didn’t respond to requests for comment.

7. Are your taxes too high? Change the tax laws

Sometimes it pays off to fight for a new tax cut. For the billionaires that contributed millions to Republican politicians the payoff came in the form of Trump’s “big, beautiful tax cut” for passthrough businesses. The change resulted in $1 billion in tax savings for just 82 ultra-wealthy households in one year. Business owners have also seen an increase in their savings with a trickThey reduced their own salaries and categorized the money as passive income.

8. Why Tech Billionaires Make Less Than Hedge-Fund Managers

There are many ways to lower taxes. This is why the wealthiest Americans often have low income tax rates. We analysed the incomes and taxes of the country’s top 400 earnersThose earning over $110 million per year. Overall, the group paid relatively high rates. However, certain segments (tech billionaires or heirs, private-equity executives) stood out within this elite population due to their ability to draw from the techniques described above. These techniques were also used. wealthy politicians, like the governors of Colorado and West Virginia.)

9. Brother, can you spare a stimulus check?

The real standouts were those billionaires with such low incomes that they qualify for government assistance. At least 18 billionaires received stimulus checksIn 2020, their tax returns put them below the income cutoff ($150,000 married couple).

10. This is what you should believe: How wealthy families pass billions to their heirs while avoiding taxes

We found even more amazing holes in the estate taxes. There are well-worn ways to make sure Uncle Sam doesn’t get his cut of a fortune being passed on to heirs, and the most common is through a trust. Although it is impossible to say how common this is, we did find evidence that it was at least half of the nation’s 100 richest individuals had used estate-tax-dodging trusts. In another storywe followed three century-old dynasties down through the generations, showing how they used trusts to avoid taxes, so that a fortune could pass all the way from the original early 20th century tycoon to, for example, the great-great-granddaughter who recently collected $210 million before her 19th birthday.