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Taxes Are For Little People

Sunday, October 10, 2010

Think the wealthy are all smart, friendly, spendthrift, spoiled and privileged? You might be surprised by the real forces behind their success. Here's secret #6:

"Taxes are for little people."


Most millionaires do pay taxes. In fact, the top 1% of earners paid nearly 40% of federal income taxes in 2005 -- a whopping $368 billion -- according to the Internal Revenue Service.

That said, the wealthy tend to derive a higher portion of their income from dividends and capital gains, which are taxed at lower rates than wages (15% for long-term capital gains versus 25% for middle-class wages). Also, high-income earners pay Social Security tax on only their first $97,500 of income.

But the big savings come from owning a business and deducting everything related to it. Landlords can also depreciate their commercial properties and expenses such as mortgage interest. And that's without doing any creative accounting.

Then there are the tax shelters, trusts and other mechanisms the superrich use to shield their wealth. An estimated 2 million Americans have unreported accounts offshore, and income from foreign tax shelters costs the U.S. $20 billion to $40 billion a year, according to the IRS.

Indeed, "an increasing number of people want to establish an offshore fund," says Vernon Jacobs, a certified public accountant in Kansas who specializes in legal foreign accounts.

Source: Smart Money

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