How the wealthy save on taxes isn’t a mystery. It’s about smart structures, long-term planning, and knowing which rules to use.
From trusts to tax-loss harvesting, the ultra-wealthy don’t just avoid taxes, they often pay a smaller share than you might expect. Here’s how.
1. Buy, Borrow, Die Strategy
Rather than sell appreciated assets (and trigger capital gains tax), wealthy individuals borrow against them. That debt isn’t taxable. Then, when they pass away, the asset receives a step-up in basis, erasing the gain for heirs.
For example, a billionaire borrows $5 million against stock worth $20 million. They pay interest, not taxes. When they die, their heirs inherit the shares at current market value, tax-free.
2. Donor-Advised Funds (DAFs)
DAFs let you donate stock or cash, get a tax break now, and decide where the money goes later. It’s popular with wealthy families who want to give back and lower their income in a high-earning year.
Bonus: Donating appreciated stock means they skip capital gains tax, too.
3. Tax-Loss Harvesting
Markets go up and down, but the ultra-wealthy know how to turn a loss into a win.
By selling underperforming investments, they offset gains from winners and reduce their tax bill. It’s a move many repeat at the end of each year, especially in volatile markets.
Say, they sell a stock at a $20,000 loss to offset a $20,000 gain from another investment. The net tax owed is $0.
4. Irrevocable Trusts and Estate Planning
Trusts help keep wealth in the family and out of the IRS’s hands. High-net-worth individuals use tools like GRATs or irrevocable life insurance trusts to move assets out of their taxable estate.
By doing this early, they lock in asset values and limit what gets taxed later. Pairing this with a family limited partnership gives them even more control and tax efficiency.
5. Qualified Opportunity Zones (QOZs)
When someone sells an investment for a big gain, they often roll that money into a Qualified Opportunity Zone. This defers the tax on the original gain and can eliminate taxes on any new growth if the investment is held long enough.
A $500,000 gain reinvested into a QOZ fund could defer tax until 2027, and if held for 10+ years, any new gains may be tax-free.
These zones are meant to boost underserved communities, but they come with serious tax perks for patient investors.
6. Private Placement Life Insurance (PPLI)
PPLI is a niche tool used by the ultra-wealthy. It works like a life insurance policy, but it also holds investments inside.
Those investments grow tax-free, and the money can pass to heirs without income or estate taxes. It takes millions to get started, but the long-term tax benefits can be huge.
7. Offshore Tax Planning
Some wealthy families set up trusts or companies in tax-friendly countries. These offshore structures help defer income and protect assets.
While this strategy has to be carefully reported to stay legal, it’s still a common way to reduce U.S. tax exposure. It’s not about hiding money, but about managing it smarter.
If you’re thinking bigger picture, check out these 10 Financial Strategies for Building Generational Wealth that go beyond tax savings.
8. Changing State Residency
Location matters. High earners often move to states like Florida or Texas to avoid state income tax. This becomes even more appealing after selling a business or cashing out on a major investment.
With the right planning, even moving homes can be a powerful tax decision.
Learn From the Ultra-Wealthy
These strategies show that knowing how the wealthy save on taxes is really about planning ahead. You don’t need billions to apply the same thinking.
Tools like trusts, donor-advised funds, or even tax-loss harvesting are more accessible than most people think. If your wealth is growing, now’s the time to think about how to protect it.
