No one enjoys paying taxes. But the rich have taken it a notch higher by digging out different ways to avoid paying taxes and hide their money unlike the common folk. Rich people have discovered ways to hide their money, making it harder for the revenue-collecting authorities to track their wealth. Check out the different secret places where rich people hide their money.
Offshore accounts
Keeping money in offshore bank accounts is one of the most well-known methods that the wealthy use to hide their money. They open offshore bank accounts in countries that are friendly on tax, like Switzerland, Bermuda, Singapore, or the Cayman Island, thus commonly known as tax havens. Opening an offshore bank account is not necessarily illegal, but what motivates most wealthy individuals is tax evasion that many have embraced it. Thus, it’s not surprising that a good portion of the world’s wealth is stashed away in offshore accounts. According to Gabriel Zucman, in his book, The Hidden Wealth of Nations: The Scourge of Tax Havens, he estimates that at least $7.6 trillion of the world’s wealth, equivalent to about 8%, is hidden in offshore accounts.
Shell companies
Shell company is a common term discussed by revenue authorities when talking about tax evasion methods. A shell company refers to a firm that is inactive and only exists on paper. The company has no employees or assets to show off. The rich set up shell companies that they use to register as the owner of their assets or operate as business transactions. This way, wealthy individuals have fewer assets and money tied to their names, thus paying fewer taxes. A shell company can also be used to shield wealth from other parties, including a spouse, creditors, and government authorities, like the IRS.
Donor-advised Funds (DAFs)
Although charitable giving is commonly used to help the needy or commit to a particular cause, it’s a win-win for the super-wealthy. The rich use donor-advised funds to lower the amount of taxes they pay. They contribute a portion of their money to a donor-advised fund and get an immediate tax deduction. Although the money in DAFs is tax-deductible, these accounts do not dictate when you should send the money to a charity of your choice. Rich people let their money sit there for a while with an opportunity to grow, and they can later donate it.
Municipal bonds
The rich also evade paying taxes by buying bonds from local, state, and federal governments. Municipal bonds allow the wealthy to help governments fund different projects, like building schools, medical facilities, and roads. They earn decent interest in return, which, in most cases, is not tax-deductible. Stashing cash in municipal bonds is possible for the common folk but might not be the best option given the interest returns offered by other tax-deductible bonds.
Conclusion
The rich know how to protect their hard-earned money, and most of them hide their cash in offshore accounts, shell companies, DAFs, and even municipal bonds.
