Royalties are typically considered passive income and are reported on Schedule E of a tax return, not subject to self-employment tax like business income on Schedule C. As long as the royalties stem from ownership of intellectual property (such as patents, copyrights, or trademarks) rather than active participation in a business (like directly managing licensing deals or providing ongoing services), they are not considered earned income and therefore do not trigger payroll taxes like Social Security or Medicare. Structuring royalty agreements to reflect passive ownership, rather than active service provision, is key to maintaining this favorable tax treatment.
College offers several tax advantages. The three main ones are:
A 529 plan is a powerful, tax-advantaged savings tool designed to help pay for education expenses. Contributions to a 529 plan grow tax-free, and withdrawals are also tax-free when used for qualified education costs such as college tuition, fees, books, room and board, computers, and even K-12 private school tuition (up to $10,000 per year). Many states offer additional tax deductions or credits for contributions, and there are no federal annual contribution limits, although lifetime account maximums typically range from $300,000 to $550,000 depending on the state. In 2025, you can contribute up to $90,000 per child at once without gift tax consequences by using a special five-year election. If the beneficiary doesn’t use the funds, the account can be transferred to another family member or even rolled into a Roth IRA under new rules, up to a $35,000 lifetime limit. A 529 plan acts like a "Roth IRA for education," offering tremendous tax savings, flexibility, and growth potential for families planning ahead.
Retirement accounts like Roth IRAs and 401(k)s offer valuable tax benefits. Roth IRAs don’t save you taxes now but offer tax-free withdrawals in retirement. Traditional 401(k)s offer upfront tax deductions and often include employer matching. High earners may need a backdoor Roth IRA; research how to do this correctly.
Roth IRA with Conversion Ladder: A Roth IRA is a powerful tool for early retirement because you can withdraw your contributions at any time tax- and penalty-free. However, accessing earnings early typically incurs penalties. To get around this, many early retirees use a Roth conversion ladder. This involves converting pre-tax funds from a Traditional IRA or 401(k) into a Roth IRA each year. After five years, each conversion becomes eligible for penalty-free withdrawal, allowing you to access retirement funds before age 59½ in a tax-efficient manner. Starting the ladder several years before you plan to retire is key to bridging the gap.
Mega Backdoor Roth: The Mega Backdoor Roth is an advanced retirement strategy that allows high-income earners to contribute significantly more to Roth accounts than standard limits permit. If your 401(k) plan allows after-tax contributions and in-plan Roth conversions or in-service rollovers, you can contribute up to the total annual 401(k) limit (currently $66,000 in 2024) by making large after-tax contributions and immediately converting them to Roth. This accelerates tax-free growth potential and builds a large Roth nest egg quickly. It's ideal for those maxing out standard Roth and Traditional IRA options and looking to retire early with minimal future tax liability.
A Health Savings Account (HSA) offers triple tax advantages that make it one of the most powerful financial tools available. First, contributions to an HSA are tax-deductible, lowering your taxable income for the year you contribute. Second, any growth inside the HSA, including interest, dividends, and capital gains, is tax-free. Third, withdrawals are tax-free as long as they are used for qualified medical expenses. For 2025, the maximum contribution limit is $4,300 per person with self-only coverage, $8,600 for family coverage, and individuals aged 55 or older can contribute an additional $1,000 as a catch-up contribution. After age 65, HSA funds can be withdrawn for non-medical purposes without penalty (though ordinary income tax will apply). HSAs also allow you to invest your balance in stocks, ETFs, or mutual funds for long-term growth, and you can reimburse yourself for old medical expenses at any time in the future, as long as you saved the receipts. Altogether, an HSA can function like a hidden retirement account with greater flexibility than a traditional IRA or 401(k).
There are several powerful ways to use tax-advantaged strategies for buying a home. First, a Roth IRA allows you to withdraw up to $10,000 of earnings tax-free for a first-time home purchase, as long as the account has been open for at least five years. Contributions to a Roth IRA can also be withdrawn anytime tax-free, making it one of the most flexible savings tools available for future homeowners. (To reiterate: if you put $35,000 into your Roth over the last five years and it grew by $10,000, you can take out $45,000 for a first-time home purchase penalty-free.) Second, many 401(k) plans allow you to borrow up to $50,000 or 50% of your account balance to buy a home, often with an extended repayment term of up to 15 years. This loan is tax-free as long as it is repaid on schedule, providing another pathway to access significant funds without early withdrawal penalties. Finally, a proposed First-Time Homebuyer Tax Credit could soon offer up to $10,000 in refundable tax credits for eligible buyers, providing a major cash boost at closing. Together, these options make it possible to tap into retirement savings smartly and potentially benefit from upcoming federal incentives when purchasing your first home.
Real estate offers powerful tax benefits. You can deduct mortgage interest and depreciation on rental properties. A 1031 exchange allows you to defer capital gains tax when trading properties, and you can exclude up to $250,000 ($500,000 for married couples) of profit on your primary residence if you live there for 2 of the last 5 years.
Rental properties allow deductions like interest, depreciation, property taxes, HOA fees (if applicable, best to avoid HOA's if possible), maintenance, and appliance upgrades. If you qualify as a real estate professional (750+ hours per year and more than 50% of your work time in real estate), you can deduct passive losses against all income. The downside is it can be challenging to get good long term tenants.
Example: Buy a $500k property, depreciate 80% of it ($400k) over 27.5 years, and offset rental income with paper losses while still generating cash flow. It's often practical to have $10,000 cash gain along with a $18,000 paper loss with rental properties.
Businesses can write off many expenses immediately—advertising, supplies, and small equipment. Larger purchases like machinery or real estate may be depreciated over time unless you use:
If depreciation is required, this is still a strategic opportunity: using credit (especially at low interest rates) means the tax savings from depreciation can offset much or all of your upfront cash outlay. You effectively get subsidized by the IRS while paying off the asset over time.
Section 1244 also allows you to deduct up to $50,000 in losses from small business stock as ordinary losses, rather than capital losses.
Parents can claim up to $12,630 in refundable tax credits through the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC), depending on income and number of children.
The Child Tax Credit (CTC) offers $1,600 per child for incomes under $200,000 (single) or $400,000 (married). The Earned Income Tax Credit (EITC) caps out at 3 qualifying children and begins to phase out around $49,000 for single filers and $55,000 for married couples. In theory, a couple with 6 children could remain unmarried and not officially cohabitate—legally defined as roommates to avoid common law marriage—and each claim full benefits independently.
According to IRS guidelines, wages paid to a child under age 18 who works for a parent's sole proprietorship or single-member LLC taxed as a disregarded entity are exempt from FICA taxes (Social Security and Medicare). Additionally, wages paid to a child under age 21 in this context are exempt from FUTA taxes (Federal Unemployment Tax). This exemption applies only when the child is performing legitimate work for the parent’s business, and the wages are reasonable for the services rendered. Payments made to the child as an independent contractor (Form 1099) do not qualify for this exemption and may trigger self-employment tax.
Dynasty Trusts allow families to grow wealth for generations, often up to 128 years or longer in states like South Dakota, Delaware, or Nevada. Funded under the GST tax exemption ($5M per person or $10M per couple), they offer asset protection and tax-free compounding across generations. These trusts can hold real estate, stocks, life insurance, and private businesses, distributing funds based on trustee discretion or specific needs like education or health.
Trusts can appoint assets to other trusts, this is called Trust Decanting; it can allow trusts to last for many generations.
This compensation model shows how a solo business owner can use a C Corporation structure to maximize tax efficiency, retirement savings, and refundable tax credits. The company pays the owner a salary of $36,500, with $23,500 contributed to a Traditional 401(k) and a $9,125 employer match. The owner also contributes $7,000 to a Roth IRA. Because the 401(k) contributions reduce the owner’s adjusted gross income (AGI) to $13,000, they qualify for both the Saver’s Credit (up to $700) and the Earned Income Tax Credit (EITC) (up to $632) for a total of $1,332 in refundable tax credits. With the standard deduction eliminating any federal income tax liability and total payroll tax withheld at $2,795, the owner receives $33,705 in net cash and accumulates $39,625 in retirement accounts. The total outlay by the C Corporation—including salary, payroll tax, and employer 401(k) match—is $48,420. After accounting for cash received, retirement contributions, and refundable credits, the owner captures roughly $44,500–$45,000 in after-tax benefit, resulting in an effective tax drag of just 6–8%. This strategy exemplifies how to use corporate structure, retirement plans, and tax credits to efficiently transfer capital from a business to its owner while minimizing tax burden and building long-term wealth. On top of this, you may be able to structure it so you get dividends (C-Corp) which have 0% taxes up to total income of $48350 (so about $11k in dividends are at 0% after paying 21% corporate income tax) or distributions (LLC taxed as an S Corp) which are taxed as ordinary income and don't get charged social security or medicare payroll taxes. The main benefit of a C-corp in this example is after the modest dividend of $11,850 at 0% income tax (money to live off of) the corporation only gets taxed at 21% and can make long term investments that aren't taxed until gains are realized (and there's many tax deductions.) To issue this dividend, it must come from retained earnings; so you might not be able to do it the first year. Once structured and able to pay dividends, it results in a very low tax rate and about $16k in spendable cash for living expenses. In this strategy, under current IDR programs; the person would not owe student loan payments if using an income driven repayment plan (if these policies change, there is one more useful item.) Companies can contribute up to $5250 in pre-tax dollars per employee to their education, either while they're in school (tuition, supplies etc) or as of now until 12/31/2025 it can be used towards student loan principal & interest. There is a bill (Employer Participation in Repayment Act) with bipartisan support (John Thune is the only Republican cosponsor, but he's kind of a big deal) which will extend that option. So far, this bill has sat with no traction since July 2024 (write your representative in congress, Senator & the president; their people read their mail and make notes about what people are talking about. You can also write each member of the House Ways and Means committee and the Senate Finance committee, you can still write them on relevant matters; though they prioritize their own constituents.) Update: there is a new bill with small bipartisan support.
If you earn less than $36,500, you may qualify for the Saver’s Credit. For example, if you earn $21,000 and contribute $7,000 to a Roth IRA, you could save $650 in taxes and potentially qualify for the EITC as well.
Through 2035, Puerto Rico offers incredible tax advantages under Acts 20, 22, and 60. You must:
Qualifying residents enjoy a 4% corporate tax rate and 0% capital gains on assets acquired after relocating.
The U.S. tax code allows for powerful strategies to transfer wealth tax-free through gifts and inheritance. As of 2025, individuals can gift up to $18,000 per person per year without using any of their lifetime exemption, which is approximately $6.4 million per person federally (scheduled to drop in 2026). Spouses can combine exemptions for larger transfers. For long-term planning, it's often beneficial to gift appreciating assets early (while values are low) to shift future growth out of the taxable estate. Assets transferred at death receive a step-up in basis, wiping out capital gains taxes for heirs, so lower-basis assets are often best held until death. For tax optimization, consider combining annual exclusion gifts, educational and medical gifts (which are unlimited if paid directly), and strategic use of irrevocable trusts. With careful structuring, a high-net-worth individual can transfer tens of millions tax-free over time while preserving family wealth across generations.
For individuals earning six figures or operating a successful business, layering strategies can maximize long-term wealth. C-Corp owners can pay themselves up to $150,000 and have the corporation match up to $37,500 into a 401(k), while personally contributing $23,500 and $7,000 to a Roth IRA. While higher salaries incur more tax, the employer match and long-term tax-free growth can outweigh the short-term tax cost. Additionally, selling covered calls within tax-advantaged accounts can generate passive income with no current tax liability. Qualified Small Business Stock (QSBS) under IRC §1202 allows for up to $10 million in capital gains to be excluded from tax, and dividends up to $452,000 may be taxed at only 15% under current law. These strategies, when paired with relocation or trust structures, can reduce tax drag significantly while building durable multi-generational wealth.
One popular tax strategy is owning stock, taking loans against the value of that stock; never selling because that would trigger capital gains tax. This is overdramatized by the media, first it needs to be a liquid stock with plenty of market history; when Martin Shkreli tried to get loans against his stock he was told the company hadn't been trading for long enough. Second, it's usually capped at 50% of your holdings or what could be liquidated instantly. Third, there was a time when these loans were at rates reportedly as low as 2% (at a time when mortgages were 3.5%) and it's possible they were that low; but according to a search of securities based lending it tends to run about 8.8% right now. Finally, these loans are not allowed to be used for buying more stock, they're supposed to be used for consumer purchases (I don't agree that a bank should have such a policy) but it may be possible that they won't object to private business investments. If I used such a strategy, I'd take loans against index funds and invest in high probability private equity investments in companies I think I can make $10 million off in 5 years as that has numerous tax benefits; but I wouldn't do so at rates above 6% (preferably lower.) The risk is that they close out your position due to a market decline, also those interest rates add up; be very careful with this type of loan (I strongly suspect when they offered 2% rates it may have been a form of "vulture capital" to buy companies for half the value at the time of lending, though that's just a theory.)
Outside the U.S., Monaco offers no income tax. A 1-year apartment lease (as low as $2,200/month) and/or starting a business ($16k in fees) can establish residency. After 10 years, you may request citizenship.
The UAE is also popular for low taxes, business-friendly laws, and luxury lifestyle. Be respectful of local customs, especially outside resorts.
Other Caribbean islands offer residency or passports with tax benefits, but U.S. citizens remain taxable on worldwide income unless they renounce citizenship— which may trigger an exit tax.
I don't object to taxes completely, but the tax rate should be fair. If you're an employee making $15k a year, your total tax burden is under 8% and if you earn $50k it's just under 16%; but if you're self employed the tax rate is higher in part due to having to pay both sides of payroll tax (as employers match Social Security & Medicare contributions.) The logic is that you can deduct expenses of your self employment and you have to make both sides of payroll taxes, but you still have food, residence, health insurance; and the states with state income tax (CA and NY for example) often have some of the highest cost of living (especially NYC, LA, and Silicon Valley.) President Trump has proposed eliminating federal income tax on those making less than $150k in the future as soon as the deficit is closed, since those making over $150k annually pay close to 90% of federal income tax revenue; if they had done this 20 years ago and kept federal budget increases to a minimum it might have worked and could theoretically work (though post covid budget increases are dramatically higher, especially due to high interest rates and those will have more lasting effects if the nearly $9 trillion in national debt needed to be refinanced this year if interest rates are not dropped before that time.) I don't see myself moving to Monaco or UAE, Puerto Rico has major tax benefits which are justifiable (for moving there) for those earning over $100k who want to move there and benefit from Act 60 and that's an option I'll strongly keep in mind. When I retire, on the smaller side of the scale I'll get tax free income from a Roth IRA and possibly Roth 401k. Also, on a larger scale; I'll focus on private equity investing (opportunities that benefit from QSBS for no taxes on the sale of up to $10 million per qualified investment) and derive my spending cash from the 15% tax rate on dividends up to $533k (though there's a NIIT of 3.8% above $200k, the first $48k of dividend income is tax free up to $533k (inflation adjustment 2025 tax year, I'll try to adjust earlier numbers elsewhere on the site) which gives it a 16% tax rate. To get to that point, one needs to keep an eye on taxes; either by long term investing, using business (which has many deductions for using money to grow the business and favorable tax rates for selling a business) or moving to PR and having these opportunities within an extra low tax environment. Real estate is also an option, it's just not my personal preferred investment (as real estate prices are high, taxes on real estate is high, I've known people who had to deal with problem tenants; etc.)