The World's Wealthiest People Have These Tax Breaks In Common

The wealthiest people in the U.S. have had legal tax advantages for at least 44 years thanks to former president Ronald Reagan's 1981 Economic Recovery Tax Act. It's only getting worse. According to the Institute on Taxation and Economic Policy, the One Big Beautiful Bill Act returning $117 billion in tax breaks to the top 1% of earners is just a continuation of a pattern. As per the Center on Budget and Policy Priorities, the wealthy taking advantage of tax breaks isn't new, with the top 1% of earners in 2022 taking 68% of all tax breaks. 

According to the Tax Policy Center at the Urban Institute and Brookings Institution, the OBBBA plan to cut taxes in 2026 by around $2,900 would benefit the highest earners in the U.S. The highest 20% of earners making $217,000 or more can expect a return of 3.4% — the equivalent of around $12,500 per household and $1,500 more than they would have received under previous plans — while the top 5% of highest earners making between $460,000 and $1.1 million could see a 4.4%, $21,000 tax break per household. Although this is about $3,000 more than they would get from previous plans, a previous tax cut of $18,000 per household demonstrates that the wealthiest Americans were getting tax breaks well before the election of Donald Trump.    

It's no secret that even members of Congress have become wealthy from investments. If you're fortunate enough to be in that position, you'll want to avoid making mistakes on your taxes that could get you booted from the upper-class. According to Americans for Tax Fairness, the centimillionaire and billionaire class in the U.S. has a built-in loophole to help them achieve this thanks to a lower federal tax rate on investment income. In 2014, when this paper was published, the statutory tax rate on investment income was 23.8%, compared to a tax rate of 43.4% for employment income.

As per Smart Asset, the top 2025 tax rate for investments held for over a year — considered long-term capital gains — was 20% for individuals earning $533,401 or greater. As per H&R Block, the top rate for federal income tax is 37% for individuals earning $609,351 or more, while middle income earners in the $47,151 to $100,525 and $100,526 — $191,950 tax brackets will pay 22% and 24% respectively. So in 2025, income from long-term investments made by individuals earning $533,401 or more — a strategy favored by wealthy individuals like Warren Buffet — will still be taxed at 2% to 4% lower than middle-class income. This extends to wealth managers who often pass the tax burden onto their clients, carry over interest on commissions, and waive fees in exchange for a higher share of capital gains, taxed lower than income. 

With blue chip art works by legends like Jean Michelle Basquiat and Andy Warhol helping auction house Sotheby's sell $186.1 million worth of art in a single night, it's easy to understand how valuable an asset the right piece of art can be. However, unlike most capital gains taxed at the 20% tax rate, as per the Internal Revenue Service, the wealthy must pay a tax rate of 28% on money earned from art sold from their collections. This is another opportunity for well-paid accountants who know how millionaires legally avoid paying taxes to offer solutions, and there are a few.

As an appreciative asset, art can be borrowed against. Employing the appreciative value of a $22 million Basquiat painting purchased for $10 million a decade ago allows a wealthy individual to purchase another piece of art without paying capital gains taxes. Philanthropy in the form of donations of art from their private collections are a tax deduction for the wealthy. If a donor feels like a change of scenery on their walls, they can exchange artworks for others of similar value and both parties can avoid capital gains tax. Finally, freeports — warehouses where items warehoused are exempt from taxes — are located around the globe and are employed by the wealthy to safely stash their art, tax-free.  

As per the Tax Policy Center, the top 5% of income earners in the U.S. — individuals earning between $460,000 and $1.1 million under the OBBBA — stand to see an average tax break of $21,000, offering wealthy individuals who really don't need it a return of 4.4%, around the equivalent of $3,000. It's even more generous for the top 1% of income earners making $1.1 million or more per year with an average $29,000 tax break, and for the top 0.1%, an extra $40,000 tax break on earnings of $5 million or greater. These tax breaks are higher than in previous years. Meanwhile, middle income earners may see the equivalent of $1,800 in tax breaks while Americans with incomes $35,000 or below can expect to see $160 tax break. For the latter, that's the equivalent of less than 1% of their post tax incomes in comparison the top 5% of earners 4.4% of post tax income.  

According to the Center on Budget and Policy Priorities, the bottom 80% of income earners in the U.S. make up just 9% of all tax breaks given, with the next 19% earning  21% of all tax breaks. That's despite the fact that, as per the Federal Reserve 2022 Survey of Consumer Finances via the Center on Budget and Policy Priorities, the top 10% of white income earners in the U.S. making up just 7% of the total population, owns 61% of total wealth. 

One of the lesser-known strategies the wealthy use to protect their fortunes allows them to take advantage of the passing on of generational wealth to claim tax breaks. For one thing, as per Americans for Tax Fairness, estate tax law makes it possible for the uber-wealthy to hold onto their assets until they expire, in which case their heirs escape paying capital gains tax. According to the DC Fiscal Policy Institute, this is part of a three-pronged strategy that begins with buying the asset — art, real estate, or investments — and holding those assets for the long-term. The second part involves borrowing money against the appreciative value of the asset to pay for their lifestyle, or to buy more appreciative assets. Viewed as debt, these loans are untaxed, and further serve to enrich the household. Finally, after passing, the assets are transferred to their heirs, tax-free and without limitations.

Meanwhile, as per the Center on Budget and Policy Priorities, the OBBBA could cut the Child Tax Credit for 20 million children in the U.S., and strips 4.5 million children under citizen or legal permanent resident status of the Child Tax Credit altogether. So while the wealthy are able to buy appreciative assets with debt in life, and pass them on to their children tax free in the afterlife, thanks to changes in policy, living working class parents will either see no change, or lower tax credits, as the cost of living rises.

While holding on to and borrowing against assets like art and investments provides opportunities for the upper crust to manufacture tax breaks, they've also figured out how to get a break on employment income through vehicles like S corporations. According to the Internal Revenue Service (IRS), S corporations are allowed to share deductions, credits, corporate income, and losses with their shareholders, who then individually file the corporate income and losses as part of their personal tax returns. This is then assessed at the shareholders' individual tax rate, which could include up to 100 different shareholders. As per Americans for Tax Fairness, wealthy self-employed individuals with S corporations can avoid paying payroll taxes in this way, mainly, according to Citizens for Tax Justice, Medicare and Social Security. They can also separate corporate income from their salary, allowing them to claim much less as earned income than they actually earn through the S corporation.

In addition to this break, the Tax Policy Center notes there are around 36 states allowing corporations to leverage state tax loopholes that allow them to deduct local and state taxes through levy payments made through the business. President Trump's new bill raises the deductions allowed from $10,000 to $40,000 for every tax year on through to 2029. 

According to the Tax Policy Center, health insurance premiums paid by employers are exempt from federal payroll and income taxes, as are the premiums employees have to pay. The end result is that the post-tax cost of health coverage is lower for employees than they would otherwise be. That sounds great, but also lowers taxable income. Employer-paid premiums work out to a higher tax break for individuals in higher tax brackets, with a post-tax cost of health insurance that's less than lower paid individuals in lower tax brackets. Meanwhile, as per the Center for Medicare Advocacy, President Trump's OBBBA will lead to $1 trillion dollars in cuts to government health programs, including $120 billion from the Supplemental Nutrition Assistance Program (SNAP), and potentially, $500 billion in Medicare funding beginning in 2026 up to 2034.

A 2020 study by the National Bureau of Economic Research found that wealthy Americans get more out of their health insurance, and not just in terms of tax breaks. As per their research, 95% of wealthy men 40 years old were estimated to survive to 60 years old, compared to 84% of poor Americans, and of those who survived to age 60 in either group, the wealthy subject had an estimated 23.5 extra years to poor American's 19 years. This makes it apparent that the wealthy get more of their money's worth from their healthcare, than other classes of people, and have the benefit of higher tax breaks for the privilege. 

According to Intuit, anybody can write off state and local sales or income taxes. If you live in one of several states without income tax, the choice between deducting state and local income tax versus state and local sales tax is fairly obvious and could lead to tax credits for both. Of course, when comparing the cost of a yacht, expensive jewelry, or luxury vehicles to what the average middle income earner will purchase, or comparing the average middle income salary to what the top 10% of income earners make on average, the wealthy earner in either scenario — income tax or sales tax deductions — will come out further ahead every time. If you're interested, the IRS provides a Sales Tax Calculator for the purposes of figuring out the latter.

Although, as per the Bipartisan Policy Center, the maximum deduction allowed for all state and local taxes is $10,000 per year, on average, the top five states with the biggest deductions are New York, Connecticut, New Jersey, Massachusetts and California — two of which happen to be the most expensive states to live in, with two others bearing the distinction of being home to America's wealthiest suburb and one of the most expensive retirement communities in America respectively. With the tax break in these five states averaging between $8,881 and $9,155 compared to the bottom five states $5,994 to $6,284, it's obvious the places where wealthy Americans live receive higher tax breaks.  

When you're rich, your children can earn you money without you even needing to put them to work. As per The Conversation, the OBBBA provides a maximum tax credit of $2,200 per child for households earning up to $400,000 per year. By comparison, a family with a household income of $31,500 or under may receive a credit of no more than $1,750 per child. As the Trump administration doubles down on efforts to address the impact of illegal immigration on Social Security, the new bill legally requires both children and their parent or legal guardian to have a Social Security number to claim the child tax credit.

According to the Center on Budget and Policy Priorities, these changes to the Child Tax Credit will leave 17 million American children without access to the full credit in 2025, not including the 4.5 million American-born children of noncitizens living in the U.S. who will receive nothing at all due their caregiver's immigration status. As per the Center for American Progress, single-parent households headed by mothers accounted for more than four in five single parent households in the U.S. in 2023, with 28% of those households living in poverty. That's represented by 7.3 million single mothers and 1.6 million single fathers. While around 75% of single mothers earn $40,000 per year, making them eligible for the full tax credit, each parent in a dual parent household will still earn twice as much, including households already earning 10 times as much. 

Earning more money while avoiding paying taxes for it and never needing to worry about student debt are both signs you're in the upper class. As per Smart Asset, private school tuition isn't tax deductible federally speaking, however, there are currently 20 states offering tax credits for parents paying private school tuition for their kids. If you have a special needs child attending a private school or receiving tutoring, these expenses are tax deductible as medical expenses and will return $15,000 to $30,000 worth of deductions for single and dual parent households respectively.

According to Education Week, even though there are no federal tax breaks for private education, tax-credit scholarship programmes offer yet another loophole for the wealthy. When wealthy donors contribute to the scholarship — either as individuals or corporations — which operate like school vouchers for eligible students, they can claim deductions of anywhere from 50% to 100% of their donation. As per the Institute on Taxation and Economic Policy, this is a larger tax credit than donors will receive for philanthropy toward hospitals, capped at 35 cents on the dollar. The ability to contribute corporate stock instead of cash also creates the opportunity for donors to avoid capital gains tax. By donating the equivalent of their gains on a stock and claiming it as a deduction rather than selling shares, a donor can reap the rewards of their investments without having to pay the IRS anything for them. 

Like art and the aforementioned investments, real estate held for the long-term, or at least a year, will face a reduced capital gains tax. As per Nomad Capitalist, you would only need to pay capital gains tax on a home sale where your household income totalled $48,350 or more for single filers or $96,700 or more for couples. As an individual, a capital gains exemption covers up to the first $250,000 worth of profit from the sale of a primary residence, while the capital gains exemption extends to a maximum of $500,000 for a couple's primary residence. Overall, capital gains on long term assets are lower than short-term capital gains.

However, like art, leveraging a property for the sake of a loan to purchase more properties is how the wealthy create unrealized capital gains, since, as with art, the loan is free from being taxed. That said, the uber-rich in the U.S. are in a position to hold properties until their passing, eliminating the capital gains they would have owed in life, and pass the property on to their heirs tax free. While most of the middle class is thinking about real estate investments to sell before retirement, the wealthy are thinking about what money their real estate can unlock right now, and not selling their properties at all.