The very wealthy take out loans backed by their stocks so they don’t technically have income.
But wouldn’t they be taxed when they sell stocks to repay the loans?
In: Economics
Tax *evasion* is illegal. Tax avoidance is not. In fact, you engage in tax avoidance yourself. Yes, you too! Tax avoidance is simply taking advantage of the legally set out avenues to minimize your tax burden, and you are encouraged to do so. Deducting charitable contributions, tax loss harvesting / deducting captial losses, claiming an EV tax credit, deducting 401k contributions, etc. are all ways we try to minimize our tax liability.
One way to avoid extra taxes is to minimize income and capital gains. If you sell stock, you incur tax liability on the profit of that sale, which is either taxed as ordinary income if there’s short-term gain, or long-term captial gains if it’s held for more than a year from being acquired.
You can avoid taxes by simply not selling stocks, or selling less, which is one strategy they do. They borrow money using their assets to guarantee the loan (if they default, the bank can seize those assets to make the lender whole), and of course the loans eventually come due.
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