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.
Employer contributions of up to $5250 (deduction for business, not taxable to employee) to employee student loans or college tuition were just made permanant by the 'Big Beautiful Bill'
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.
The Augusta rule (video below) you can rent your house for 14 days or less for fair market rent and not pay any taxes on that income, people rent their house to their business for 14 days for fair market value for a deduction; basically a way to get tax free cash out of your business (check with an accountan.)
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.
Reverse 1031 (Ben Mallah talked about this on 'The Iced Coffee Hour') is where you buy your 1031 property to exchange into before selling a property that you need to exchange from, ie you have to sell something after buying this property to get a cashout without owing taxes. This is advanced, just like everything consult a tax attorney or really skilled accountant on everything.
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 (interest, depreciation) 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. You may be able to offset additional income with this for lower overall tax liability.
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.
When starting a business, it's important to understand the difference between startup costs, capital expenses, and ordinary business deductions. Startup costs, such as market research and legal fees incurred before opening, can be immediately deducted up to $5,000, with any remaining balance amortized over 15 years. However, tangible assets like equipment and machinery are not considered startup costs. These assets can typically be depreciated over their regular useful life, but under bonus depreciation rules, a large portion (60% in 2025) can often be deducted in the first year. This bonus depreciation is different from ordinary business deductions, which apply to ongoing, day-to-day expenses like rent, utilities, and employee wages. Ordinary deductions fully reduce taxable income in the year they are incurred, while depreciation spreads the cost of long-term assets over time unless accelerated methods like Section 179 or bonus depreciation are used.
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 by legally separating custody (consult an attorney to find out if this works.)
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 LLC taxed as an S-corp 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.) If any 5 people own more than 49% of a business and more than 59% of it's income from trading or investing, it results in a 'personal holding corporation tax' of 20% on top of the corporate tax rate of 21% so make sure not to trigger that by either doing more than 40% of your companies business outside of trading or having nobody own more than 9% of the company. If you buy investments and never sell them, or own 45% and everybody else only owns 1%; those can also prevent personal holding corp designation. 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) and now it can be used towards student loan principal & interest as this has just been made permanant as part of Donald Trump's 'Big Beautiful Bill' but it must qualify under section 127. Please note, you can't get both the contribution towards student loans and the tax deduction for student loan interest. (If you want to raise outside capital, Delaware C-corp allows the simplest corprate structure for C-corps which are easier to raise capital with and take public, also worth considering are Limited Partnerships and even Limited Liability Limited Partnerships which are an option in 30 states currently.) Also, the business can deduct pension (aka defined benefit plan) an actuary is needed, in this example the amount may be up to $6000 a year. In most cases, a pension is allowed to have $274k in it by age 65 in order to be fully deductible; so the later you start the more you can put in; a 40-45 year old might be able to put $6000 a year in and fully deduct it and a younger person may put in a lower amount. The benefit is another way to grow capital without taxes taking a cut at the beginning or during growth. You'll need an actuary to do this, the cost of doing so may be prohibitive; you'd have to look into it.
The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, allows eligible owners of pass-through businesses—such as sole proprietorships, partnerships, and S corporations (including LLCs electing to be taxed as any of these; C corporations are not eligible)—to deduct up to 20% of their qualified business income on their individual tax return. QBI generally includes net business income but excludes wages, capital gains, and interest income. The deduction is limited or phased out at higher income levels ($191,950 for single filers, $383,900 for married filing jointly in 2025), particularly for certain service businesses like law, consulting, and healthcare. Taxpayers under the income threshold can usually take the full deduction, while those above may need to meet additional requirements related to wages paid and assets owned by the business. President Trump proposed raising this to 23%, but the current Senate bill keeps it at 20%.
If you run your business on cash based accounting and have a business worth under $50 million, you may be able to write off inventory.
QSBS may be increased to $15 million, so the first $15 million in value is tax free. It has to be a C-Corp, held for 5 years, document how much you invest into the business, has to be less than $50 million at time of investment (last time I checked, may have increased.) Here's an interesting note, it's 10 million or 10x your investment that's tax free; you could invest up to $49.9 million and make up to 10x that in capital gains 5 years later when you sell TAX FREE! So, for example you could build a $15 million start up from the ground up over the next 5 years and sell it for $15 million tax free; then start another business and build it to a capital gain of $150 million and sell for another tax free gain; heck you could even start 3 businesses and put $50 million in each and run them up to $550 million each and be a billionaire without ever having to pay a dime in capital gains tax. Of course, have an accountant or tax attorney help you structure that. (Update: QSBS is now up to $75 million allowed in starting assets.)
QBI increased, so the first 20% of S-corp profits are tax free. If you want to sell your business, you're probably better off with a C-Corp (you can convert, but it has to be a C-corp for 5 years to get full QSBS benefit) and if you want the income then due to QBI you may be better off with another format; possibly LLC taxed as an S-Corp if that qualifies for QBI. For all of this, speak with a tax attorney or accountant who is up to date on all these changes.
Big beautiful bill made the $5250 deduction for employer contributions to employee student loan payments permanant and will grow with inflation. Please note, you can't get both the contribution towards student loans and the tax deduction for student loan interest.
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. This appears to be a justifiable option after making your first after tax million dollars or perhaps with an income over $100k under certain circumstances.
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. US citizens may also benefit from the EDC in the US Virgin Islands.
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 or with a net worth of $1 million (mostly in investable capital) 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 are high, I've known people who had to deal with problem tenants; etc.) If one wanted additional tax free income while staying in the country and keeping it simple, you might choose tax free municipal bonds (supposedly 5% right now) but that's not that lucrative.