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Tax Planning for Wealthy Individuals

Affluent individuals with substantial assets need robust measures in place to protect and grow their legacy. This allows them to accomplish their financial goals and ensure that future generations will benefit from their wealth. A significant part of managing wealth includes tax planning, which involves more than producing an accurate income tax return once a year.

If you’re a wealthy individual, tax planning can be complicated too. If your wealth exceeds $10 million, our guide titled 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning is for you. Reading this guide can give you a great start to tax planning and other aspects of wealth management. For expert help, you may want to connect with Pillar Wealth Management, a wealth management firm that serves investors holding $5 million to $500 million in liquid assets.

Meanwhile, this guide will provide you with insight into tax planning for wealthy individuals. Let’s begin with answering the question, “How much do billionaires get taxed?”

How Much Do Billionaires Get Taxed?

wealthy individual

During the first 17 months of the coronavirus pandemic, Elon Musk, CEO of Tesla, increased his wealth by $150 billion, Jeff Bezos reportedly added $75 billion, and Mark Zuckerberg’s wealth surged by $74.2 billion.

In August 2021, the Institute for Policy Studies, in collaboration with the Americans for Tax Fairness, produced a report that examined wealth accumulation by such astoundingly rich individuals. As surprising as it gets, billionaires in the US manage to pay $0 in federal income taxes, in spite of their outstanding income growth.

You’re probably wondering why these people with inconceivable fortunes don’t pay federal income taxes when most other American have to. Schedule a video consultation meeting with our wealth managers to understand how this happens. Or study the following explanation:

The majority of working Americans get their income from a regular salary or hourly wages, for which their income taxes are deducted automatically. In contrast, the super-rich obtain the bulk of their wealth from investments such as stocks, real estate, and art collections. As the value of their assets surges, their total wealth increases proportionately. Some examples of this include real estate market shifts in their favor, the stock market going up, or a boost in the value of their art pieces.

Such enormous increases in wealth aren’t subject to taxes unless the owners decide to sell those assets. They’re supposed to pay capital gains tax on the profit they make from the sale. Thus, unlike the ordinary salary or wage earner who pays income tax in real time, many billionaires have a choice as to whether and when to pay taxes on the growth of their wealth.

Even when they have to pay federal income taxes, many billionaires manage to avoid the tax rate for the highest income bracket, such as by paying themselves a low salary. Quite interestingly, individuals such as Google’s Sergey Brin and Larry Page and Facebook’s Mark Zuckerberg are all known to draw a salary of $1 a year, perhaps for the same purpose.

Moreover, many of these wealthy individuals use loans to fund their lifestyles rather than selling their real estate assets or stocks for the purpose, which makes them taxable. Financial institutions often provide massive loans to such people way more easily and on more favorable terms than to other borrowers. Banks view them as very, very low risk. Since loans aren’t counted as income, that money is not taxed. So, if you’re among the richest people, your question, “How can I use debt to pay no taxes?”, should have been answered.

Moreover, the super-rich also rely on their almost unlimited resources to donate to lawmakers, invest in policies, and hire expert wealth managers who are dedicated to minimizing their tax bills and protecting their wealth. With an army of lobbyists, lawyers, and accountants, the wealthiest even possess the power to shape laws. At every stage of making regulations and laws, they’re able to shape them by having their voices heard. If you’re a high net worth individual, hiring a wealth manager is thus a great decision. To hire the right expert, use our guide titled Ultimate Guide to Choosing the Best Financial Advisor for Families worth $5 Million to $500 Million.

Now that your query “How much do billionaires get taxed?” is adequately addressed, let’s move on to how wealthy individuals should conduct tax planning.

How Wealthy Individuals Should Conduct Tax Planning

Stamp placed on tax papers

Here are some top tax planning strategies to adopt:

Individual Pension Plans

If you’re a small business owner or an executive with a high income, this strategy is ideal for you. As a wealthy individual, you’ll realize that Registered Retirement Savings Plan (RRSPs) can leave a lot of your wealth exposed to tax. As an alternative, you can structure an Individual Pension Plan (IPP) for the executives in your business.

IPPs provide more contribution room over and above the RRSPs, which can keep increasing until age 65. Since the plans are based on the years of service and age of the recipient, they’re typically beneficial when you are in your mid-40s. To learn more about individual pension plans, schedule a video consultation meeting with our wealth managers at your convenience.

Giving Prescribed Rate Loans

Under this strategy, a high-income member of a family gives out a loan to another member of the same family, with a lower income, at the rate prescribed by the government. After paying the interest, the recipient of the loan can invest the money and keep the capital gains. This shifts the high-income family member from a higher tax bracket to a lower one, in which the overall tax impact is lower.

This strategy makes most sense when the prescribed rate, which is subject to fluctuations, is low. The returns from investments then help justify the arrangement cost. You’ll also be interested to know that spouses aren’t the only ones who can be recipients of this type of loan. You may even lend to minor children.

However, when considering this type of loan, keep in mind that it must be documented and the loaned amount should be sizable so that the investment gains offset the costs of structuring the loan. The interest must be paid before January 30 every year, or annually. Moreover, this strategy involves investing, so there’s some risk, which is why it should be done with the guidance of a financial advisor.

Increasing Exposure to Equity and Managing Gains

Investing in stocks is among the most favorable tax-saving strategies for the wealthy because the taxes they’re supposed to pay when selling stocks are usually at a lower rate than the income tax rate, especially when they hold the equity for more than a year. Plus, they’re in a much better position to take risks because their risk tolerance and capacity are higher.

When considering stock trading, however, make sure to evaluate periodically the performance of your assets and make decisions accordingly. Our guides titled Performance Guide and 5 Critical Shifts For Maximizing Portfolio Growth Strategies – For Families Worth $5 Million To $500 Million can be of great help in this regard.

The capital gains tax rates for investors who hold their assets for longer than a year are zero percent, 15 percent, or 20 percent, depending on the income. Compare these to the federal income tax brackets, for which tax rates range from 10% to 37%. These rates apply to capital gains on assets held for less than a year.

The super-rich also know how to manage their capital gains and losses to their tax benefit. For example, at the end of the year, they’ll use any losses to offset the gains that they made over the year. Some will invest in opportunity-zone programs, which invest in low-income communities, in order to defer their capital gains.


If you’re launching a new business or are a sole trader, consider incorporating it because owning an incorporated business enables you to keep funds with the structure of the company where there’s preferential tax treatment.

As the most obvious example, the tax rate applicable to businesses ranges from only 9% to 13%, while the personal tax rate for individuals is around 50%. For business owners, a significant lifetime capital gains exemption might be available, depending on the nature of the business. Plus, they also have a lot of tax deferral opportunities.

Holding private real estate in excess of a specified amount can lead to estate tax, but if you hold real estate through the corporation, your estate tax concerns should be greatly mitigated.

Incorporating your business also brings about limited liability, securing your private assets or wealth in the event it goes bankrupt.

However, there are a number of legal and accounting charges involved in establishing a corporation. Some of the costs are associated with shareholder agreements, filing tax returns, articles of incorporation, and annual financial statements and reports. To learn more about how to incorporate a business, schedule a video consultation with our wealth managers today!

Charitable Donations

Making charitable donations comes with a number of tax benefits. Through donations, wealthy individuals can earn tax credits, which reduce the amount owed in taxes. If not claimed previously, donations can be claimed for the last five years.

High net worth individuals who may want to earn greater benefits and wish to give more to their favorite charity have another option. A benefactor can create their own account through a donor advised fund, with at least $10,000 with an established foundation, receiving the donation tax break upfront. Initially, if you’re not sure where to donate, as there’s no immediate obligation to give to a particular charity, the fund may offer flexibility in that regard. Meanwhile, you may keep contributing to your fund and keep growing your money.

Direct investment donations are also a great tax strategy that eliminates the capital gains on certain securities. These investments can include segregated funds, government bonds, investments trading on specific stock exchanges, and mutual funds. Donating investments can thus prove more advantageous than selling investments only to end up paying the capital gains tax.

Use Student Loan Interest Deduction

If you have obtained student loans for your children, you can use the student loan interest deduction as a tax break, up to $2,500 in interest paid. So, to answer your query, “Can I claim my HELP debt as a tax deduction?”, you can’t exactly do that, but you can use interest on student loans as a tax break.


By now, you should have a comprehensive understanding of how tax planning for wealthy individuals works. If you’re a wealthy person who’s been paying a lot of money in taxes, you should be looking for ways to minimize your tax burden. Seek inspiration from all the billionaires discussed in this article, including how they managed to minimize their taxes.  

Given the complexities involved in tax planning, we strongly recommend hiring a wealth manager or financial advisor who can guide you through the process. For high-quality advice, reach out to Pillar Wealth Management, a reputable wealth management company serving investors between $5 million and $500 million in wealth. To hire a wealth manager, schedule a video meeting with us without delay.

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