Christopher ZeniosHow many assets do you need to qualify as ultra-rich? see Comparing the HNWI with the Ultra-HNWI.
One key factor of managing such a large array of business and assets is to consider the cost of taxes and more importantly how to save/save on them.
Strategies the Super Rich Use to Pay Less in Taxes Include
Retirement Accounts
This strategy is common among the ultra-rich, qualified retirement plans come with tax benefits. The employer-sponsored plan 401(k) (limit $18,000 for 2015/2016) are funded with “pre-tax” dollars that reduce your taxable income. For those who are self-employed, plans like SEP IRA are advantageous with limit $53,000 or 25% of compensation — and the traditional IRA, limit $5,500, are tax-deductible.
Business Tax Deductions
Business owners can use 179 of the tax code which grants companies the ability to deduct up to $500,000 in assets for the fiscal year. A further feature allows business owners to depreciate 50% of the cost of equipment purchased and used, it will then be 40% in 2018 and 30% in 2019 this is called “bonus depreciation”.
For businesses that are small/mid-size that export outside the US, Interest-Charge Domestic International Sales Corporation can bus used. The IC-DISC allows tax to be applied on just half the money that is earned on exports reducing the cost by 50%.
Charitable Donations
Another well know tax strategy for the ultra-rich is to donate investments such as stock to charitable donations, thus avoiding paying capital-gains taxes on the stock gains.
Self Employed Health Insurance
Although obvious this tax suggestion is often missed but those who are self-employed are able to deduct health insurance.
Young Nationals
One country that has recently changed tax laws is Poland. In an attempt to stop young Polish people from finding work elsewhere the new law has been put in place. The law is for Polish people under the age of 26 who earn less than 85,528 Polish zloty ($22,547) a year to be exempt from the country’s 18% income tax starting August 1. The allowance is considerable since the average Polish salary stands at just below 60,000 zloty ($15,700) a year. The government predicts that 2 million people will qualify for the benefit.
Having a Corporate Structure to Save on Taxes
A factor that largely influences tax rates is the corporate structure of companies. The majority of US companies pay between 35% to 50%, but for HNWI who structure their company in the correct way it is possible to reduce the tax percentage to single digits. The Ultra-rich achieve this by arranging their services into offshore businesses. For those that may think this sounds illegal companies such as Apple, Google, Microsoft, and Starbucks do the same.
If done in the correct way HNWI can legally save on tax via offshore businesses. Benefits can include protecting assets from impending litigation, protection from political uncertainty and economic instability.
As each country has its own tax laws the possibility of finding a country with lower tax is vast. Offshore companies are ideal for a web-based business, international business, consultants, stock traders and international investors. Essential any HNWI that is capable of having a location independent of business can benefit from an offshore company. Some of the most popular countries for tax among offshore companies include:
- Nevis
- Seychelles
- Mauritius
- British Virgin Islands
- Cayman Islands
- Antigua
- Anguilla
- Ireland
- Malta
- Cyprus
- Estonia
- Hong Kong
- Singapore
Each HNWI will have to research what tax in what country best suits the individual needs of their business as factors such as infostructure, location, language as well as tax need to be taken into consideration.
With the above corporate services in mind, if an Ultra-Rich individual put just one of these points in place no doubt, they would be saving money on taxes that would then allow them to use the money elsewhere in investments.
