How the rich avoid paying taxes…MY strategy – Part 1

Summary

• Living in a lower tax state or country can significantly reduce your tax burden. For instance, California has a high tax rate while other states have zero tax rates.
• The U.S. taxes its residents on global income, but moving to Puerto Rico or renouncing U.S. citizenship and returning with a visa can reduce federal taxes.
• The key to wealth is compound growth, not the money you initially invest. Investing early and living frugally to save more pays off more in the long term.
• Buy assets when they are undervalued to immediately triple your investment without paying tax, and let it grow tax-free over time.
• Buying with the intent to hold for the long term is a strategy used by the ultra-wealthy because it avoids taxes on capital gains.
• Take loans against appreciating assets to fund your lifestyle without triggering income taxes since loans are not considered income.
• The ultra-wealthy focus on growing their assets without paying taxes, rather than relying on small tax hacks that change frequently and may carry risks.
• The overall goal is freedom rather than money. Living in a place like Puerto Rico to save on taxes should not compromise the lifestyle and freedom you desire.
• Don't let the allure of the 'game' of amassing wealth make you lose sight of the fact that money should serve your freedom and ability to live the life you want.

Video

How To Take Action

I would suggest starting by considering where you live to cut down on taxes. If you're in a high-tax state like California, moving to a state with no income tax can save you a lot of money. Also, if you're really serious, look at places like Puerto Rico where taxes are way lower, but remember to weigh that against the lifestyle you want.

Next, focus on growing your money over time. Putting aside even a small amount early on can add up because of compound growth. Try to live simply and save as much as you can when you're young. This will make a bigger impact on your wealth later on than trying to save more when you're older.

Buy assets that are cheaper than what they are worth. You triple your money right away and avoid taxes, letting it grow tax-free over the years.

Keep in mind, holding onto investments for the long term can be smarter than buying and selling often. You avoid capital gains taxes this way, and remember, the ultra-wealthy think about money over decades, not just months or years.

If you have assets that grow, consider taking loans against them to fund your lifestyle. These loans aren't taxed as income, so you can enjoy your money without a tax hit.

Remember, the goal isn't just to get rich but to have the freedom to live the life you want. Don't sacrifice your happiness for the sake of saving on taxes. Find a balance that works for you, like I found living in Texas instead of California.

The key is thinking long-term and making smart choices now that set you up for lasting wealth without getting caught up in complicated, risky tax schemes. It's not about the hacks; it's about the big moves that really add up.

Quotes by Alex Hormozi

"Live on absolutely nothing for as long as humanly possible so that you can start using the compounding interest of time to your advantage"

– Alex Hormozi

"The dollars now count 10 times more than the dollars in 10 years"

– Alex Hormozi

"Buy something that's worth a hundred dollars for thirty dollars, you instantly tripled your money except you didn't pay tax on that tripling"

– Alex Hormozi

"Buy things to hold them for the long term"

– Alex Hormozi

"If you continue to plow all of your money into assets that earn while you sleep, then you can live off the loans against those assets tax free for the rest of your life"

– Alex Hormozi

Full Transcript

in this video i want to talk to you about the tax strategies of the ultra wealthy and as someone who is ultra wealthy i find it ironic that the vast majority of videos that i see on youtube are made by people who are not ultra wealthy talking about how the ultra wealthy do things when they have no transparency into what those actions actually are [Music] i have gone through i've spent probably 750 000 on different tax advisors different tax strategies to try and figure out at least the u.s system to you know minimize tax drag and uh the conclusions that i have are somewhat simple and i want to share this with you so i can hopefully help you avoid a lot of the headaches and pain that i had to go through in this process and for context in the last three years i've spent 18 million dollars or i've paid 18 million dollars in taxes to the us government and happily done so uncle sam but what i want to do is rather than talk about the little itty bitty hacks i want to shift your perspective around them because um as i've looked into many many many of these things that are touted as tax strategies most of the times they are they are just tiny little bbs that do not make a significant difference and so if i can shift your perspective around this and get you to think the way the ultra wealth you think about taxes then i think that will make a bigger difference in your life than anything else will right off the bat the first thing is where you live is going to make uh you know the biggest initial difference and so first off in the u.s at a state level where you live is going to you know you can have a zero tax day versus you know california is a 15 or 16 tax date plus all the other taxes they tack on everything else you do and so you know the first and obvious thing to do is you can live into live in a lower tax state now the second level of this is what country you live in and so if you are a u.s resident you you suffer from uh global taxation meaning it doesn't matter where you live they're going to tax you and so there's only two ways to get around federal tax the first is to live in puerto rico six months of the year and export services from puerto rico if that is you you can do that it's a four percent federal tax rate so you can have zero percent state four percent federal and live there it's 100 legit it is legal to do that the other way to do it is to expatriate meaning you stop becoming a us resident you renounce your citizenship um as a u.s citizen and then you come back basically as an alien the way that you do that is you can become a citizen by investment you spend a million dollars uh in investment uh into the us and then you get basically a golden visa which means you pay for it and again though you have to be here less than you know six months of the year otherwise you then become a u.s tax resident again even if you're uh not a us uh citizen so the the big conclusion here is in the beginning you know get out of the states that are you know the high tax states move to a state that is lower tax but what i want to do is shift your perspective around this overall big picture because if you look at how your wealth will compound and again this is why i said this is tax strategies of the ultra wealthy the vast majority of your net worth is going to come from growth not the contributions okay and so if you plug your money into or what your what your retirement calculator you can google when they're all over the place you'll be able to see that the vast majority of your net worth over time is going to come from the growth of the assets that are in it not from the contributions and it comes mostly from starting early and so that is why i'm such a big proponent of living on absolutely nothing for as long as humanly possible so that you can so you can start using the compounding interest of time to your advantage and for perspective for everyone who's listening to this don't think right now i can only put 500 a month aside it's not going to make a big difference the thing is is that 500 a month when you are 20 will make a bigger difference than 5 000 a month when you are 45. so think about that for perspective all right the dollars now count 10 times more than the dollars in 10 years and so forth okay so that's number one the second thing that the ultra wealthy do in terms of uh tax considerations is that they think differently about how they buy so for example if i buy something that's worth a hundred dollars for thirty dollars i instantly tripled my money except i didn't pay tax on that tripling right because the value of what i purchased is worth three times more than what i paid for it but the beauty of this is that i get that gain without having to pay taxes on it and then it continues to grow and compound again without taxation and so the vast majority of much wealthy people understand this and they and they structure their life and their investments in that way which leads me to the third thing which is how slash if you sell so the only reason that the the tax rate is going to matter to you is if you pay capital gains and that means that you've chosen to sell but there are a lot of strategies around buying and holding you look at warren buffett he's held he's held seized candy for how you know 30 something years or 40 something years same thing with coca-cola right same thing with geico he continues to buy things and hold them because he realizes that the tax treatment is going to be so efficient if you buy correctly and so the goal is to think from the perspective of not i'm going to buy it and try and flip this i'm going to hold this for five years or this company looks good for this month is do i think that this thing is going to last for a very long time and if so i will get disproportionate returns by buying safe and buying something that's going to be here in 30 years then trying to buy something sexy now and so if you can understand that then you buy things to hold them for the long term because the biggest shift in perspective the ultra wealthy have versus the not wealthy is that they think in longer time horizons they think about generational wealth they don't think about what i'm going to pay for this month how can buy a car or whatever the fancy stuff that leads naturally to the fancy stuff which is like well if i'm buying all these things how am i going to live my life later good question well the cool thing about how the u.s tax code works is that loans are never treated as income but they are spendable money that you can consume and use and so for example if i continue to plow all of my money into assets that earn while i sleep which is the definition of wealth that i gave you one of my other videos if they continue to grow and they are growing tax-free then the growth that is tax-free i can i can realize by taking loans against those things and i can use those loans to live my life and as long as the loans that i'm taking are less than the growth of my assets then i can use all of that growth continue to let it compound tax free for the rest of my life and live off the loans and when i dab they can they can rectify my account and so these are the strategies of the people who are ultra wealthy the things when they talk about conservation easements which is uh basically you donate land and you get the full value of the land even though you didn't pay the full value it's it's a bb right you're not going to be able to put your entire income against that uh you know captive insurance i've got a friend of mine who was like dude do this thing with me and say and for me it ended up it was going to save like 250 thousand a year which honestly doesn't make a big dent for me and it wasn't really worth the hassle so i was like i don't know this was a little fishy guess what happened the irs ended up flipping the their rule ruling on it saw people taking advantage of it and then they back back charge people with interest and fees right and so the thing is is that the us tax code is not fair because the government can change the rules whenever they want they can say you know what we changed this rule this year and we're going to back text people three years they can do that because they have complete control there's nothing we can do about it right i like to think about it just like i think about content on any kind of platform is that i just have to align within the rules that that exist and long term if i don't sell anything i'm not going to get taxed on it and so the idea long term is live for less than i you know for as low as i possibly can if you like island living then by all means go and live on an island if you if you so choose for me i've chosen not to do the puerto rico thing because the difference in net worth for me makes no difference in my life because the difference between having a hundred million dollars and 180 million dollars to me makes no difference and so i got into this game because i wanted to have used money to have freedom to do x y z right to live where i wanted to live to do what i wanted to do with whom i wanted to do it right and so if that is the goal of what the money is going to afford me i can't put the money above the freedom and so if i have to remain prisoner of an island for six months of the year in order to get my a better income tax rate right then it seems like it's putting the cart before the horse for me it's i'm i'm relinquishing the original objective i had and making the path or the vehicle the objective rather than realizing that money in it of itself has no value it only has value in so far as it allows me to do things that i want to do and so if i'm forgetting that which many of us do because the game is so enticing then i think that that is what makes that more uh reasonable a lot of people end up rationalizing no you know i love island living but i'll tell you what the reason that they give you that four percent is because it's not that sick so for me i think the easy thing me living in texas versus california the the living lifestyle is the same for me uh but i but i pay less fewer taxes worth it makes sense to me living in puerto rico i'm relinquishing a lot of freedoms there and i have to be there six plus months of the year and for me that's very difficult with outages and and basically no stores that are interesting and not a lot to do i'm not going to give up the half of my life literally um so that i can get half more money on my net worth because as much as people are like well that 40 is going to compound well so is the other 60. and so again i think it makes sense if you are if you were smaller and you were starting out and you're trying to develop your net worth but i can tell you right now the vast majority of your worth is going to come from the growth and none of that has to be taxed and so if you play the game the right way which is the way the ultra wealthy play they're not trying to think about all these little hacks and codes that you see on the internet here it's really about making sure that you understand the big rocks correctly which is buy low immediately get value on your money for buying for less than what something's worth when you sell it or don't sell it at all you can continue to take loans against the increased value of the assets and you can live off this rest of your life if you so choose and so these are the tax strategies of the ultra wealthy from someone who actually is ultra wealthy i hope you found value in this video click subscribe and i'll see you in the next bit bye