People love talking about how Jeff Bezos doesn’t pay enough taxes. I honestly don’t care, and neither should you. Unless someone is stealing your wealth (via corruption or inflation) then stay in your lane and worry about building your own wealth. Losers compare themselves to the guy next to them.
Nevertheless, you should know about the two tax strategies Bezos uses because you may be able to use them yourself.
1. The Small One: Tax-Loss Harvesting
This age-old strategy is when you sell off something at a loss in order to offset the gains you made in something else. So if you made $1 million in business income, and you want to drop a loser investment that’s down $100,000, you can sell that investment and reduce your tax liability to $900,000 in business income.
Tax-loss harvesting is an incredibly personal tool because it has to do specifically with what you’re getting income from and also which other investments of yours are down, so I can’t get incredibly specific to your situation.
A few things you want to consider when tax-loss harvesting may include:
- Ordinary (W-2) income or freelance/contractor income (often a 1099)
- Real estate income
- Stocks investments (realized gains or losses)
- Crypto investments
At time of writing (Sept 2021) you can legally sell-off and re-buy crypto without incurring a wash sale since it’s not stock (#NotAdvice so ask your accountant before doing this).
FYI: This is not the same as writing off depreciation on assets. Yes, do that, but that’s not what tax-loss harvesting is.
2. The Big One: Borrowing Against Your Assets
Normally, if you want cash, you need to work for it or sell something to get it. You can also borrow cash with the promise to pay it back later with interest.
Say you had a business idea and you needed a million dollars to get started. Good news! You happen to own a house and have equity in it for a million dollars. BUT—but but but—you still want to live there so you don’t quite want to sell it yet. What to do?
You take out a (second?) mortgage on the equity you own. Now you put the house up as collateral so if your business goes under, the lender is protected. You’ll also pay interest on the loan so it’s worth the lender’s time to begin with.
For most Americans, their house is their biggest asset. But what if your biggest asset is the business you own?
This is Bezos’ strategy (and he’s certainly not the first to use it). You won’t be able to do this unless you own a business. It’s also harder to do this if your business is privately held. It just takes a second to see the valuation for a publicly traded corporation.
In a reversal of our second mortgage example, Jeff took out a billion-dollar loan on his business equity to buy his house. The reason Jeffy can use this strategy is he’s over $100 billion in equity in a massive multinational corporation.
He doesn’t sell off his stock, so he doesn’t have a taxable event. In fact, he is actually paying interest on a home, which you can write off on your taxes. King.
How You Can Be Like Jeff Bezos
You’re not going to find yourself owning a successful business overnight. But you can build a great business over 10 years—if you’re committed.
RELATED: A Basic Plan for Getting Rich
Once your business is thriving, audit your business to get a proper, vetted valuation. You don’t need to IPO for this to happen. Hire a third-party accounting/auditing firm. It’s a good practice to do anyway.
Let’s say after the audit, your business is valued at $10 million (and you own all of it). Now you can use your business value as collateral to get a loan.
BIG, big disclaimer: I’m not a lawyer and this is definitely not advice. Talk to like, 30 lawyers and accountants if you’re going to do this.
Likely you’ll end up with a loan for a partial value of the business. Now you can use that to purchase another asset (asset, not a liability, so not something dumb like a speed boat that’s not used for legitimate business purposes).
Using it to buy a house, investment property, or another business? Great. You’ve started cracking the code.
One of those open secrets of life is that the richer you are, the easier it is to get more money. And now you know one way how—just like Jeff Bezos.