Ever dreamt of earning millions of dollars and paying taxes in meager hundreds or thousands? When speaking legally, the US tax system is such that the higher the income strata, the higher goes the tax amount. This is the theoretical piece of information. Practically, things work the other way round!

A CPA or a tax attorney prepares the taxes of a wealthy individual, particularly a multi-millionaire or billionaire. Alternatively, the return could be completed by a CPA company with the assistance of a tax attorney.

Why hire a professional – your financial advisor or a tax attorney?

You’ll naturally have a vested interest in reducing the damage when millions or billions of dollars are at stake. The damage can be controlled by reducing income taxes. Here lies the need for a CPA or an attorney – he/she helps in completing your tax return. The expense of hiring a CPA or tax attorney is worth it, as the entire asset value of the individual becomes largely tax-deductible!

The ordinary American is often under the pretext that the higher his/her income goes, the higher goes the tax burden too! They are mostly unaware that the federal tax code contains hundreds, if not thousands, of tax loopholes. The more your income is, the more tax breaks you’ll be eligible for, and take advantage of them too. And the more money you’re ready to spend on the experts who can help you find them, the better.

Ways for the rich to avoid taxes

The most popular tax benefits that need a mention are listed here – basic deduction, itemized deductions (if they exceed the standard deduction), and tax-deductible contributions to retirement plans. These are availed by an overwhelming majority of Americans.

The wealthy can take advantage of them. Also, because of their increased wealth, they are generally able to do so at a much higher level.

The first step to reducing your tax bill is to turn to a professional tax attorney or the best financial advisor in Los Angeles. However, you can try these too:

  1. Depreciation is a tricky expense that results in either a low-income or a no-income-tax bill!

Depreciation is a paper expense. That is because it does not need actual cash payment in the year when it is claimed. What usually happens is that the business owner purchases an asset and depreciates its value of it over some time. The asset might have been bought with cash, with finance, or with a mix of both.

There are no costs incurred at the moment of purchase (other than applicable depreciation). However, if the asset is assessed to have a five-year economic life, the business owner can deduct depreciation for the entire five-year period. This results in an annual expense but with no associated monetary outlay in reality!

  • Municipal Bonds – one of the most effective tools to save you from taxes!

Assume you’re a multimillionaire with $50 million to spend. You decide to invest the entire amount in municipal bonds paying a 3% interest rate.

Your $50 million municipal bond portfolio will generate $1.5 million in annual income, all of which is tax-free.

What’s more, if the bonds are issued in your home state, the interest paid on them is exempted from the state income tax too.

  • Depreciation under Section 179

The US tax code includes a specific depreciation option known as Section 179 depreciation. The section allows a company to write off up to $1 million in assets in the year they are purchased! It’s exceptionally tax-wise you see!

Not that these are the only tax-cushioning tactics available at your disposition. There are many more. Your financial advisor or CPA could both guide and advise you on a lot more!

By Manali