How Ultra-Wealthy CEOs Minimize Taxable Income

 

In quite a few cases of the richest people in the United States, a majority of them being tech founders, the scenario is that they take very low or even $1 salaries. It is not that they lack income but rather because labor income is more heavily taxed than capital gains. Through the technique of cutting salary to a minimum and using the stock value increments, rich executives reduce their income tax liability.

 

By​‍​‌‍​‍‌​‍​‌‍​‍‌ way of example:

 

It was reported that Mark Zuckerberg took a salary of just one dollar.

 

During the year 2024 Elon Musk was not compensated by Tesla with any salary.

 

Jeff Bezos pays less than a usual CEO that means he can receive tax-credit benefits.

 

Such moves are publicly known and depend on the notion that people are considered wealthy because of what they own (mostly stocks) rather than the income that is shown in the

tax ​‍​‌‍​‍‌​‍​‌‍returns.

 

Unrealized Gains and Stock Buybacks

 

If the stock price goes up, the owner is not required to pay the tax on the gain until he sells his shares — hence, a billionaire’s wealth can go up substantially without him having to pay taxes. To illustrate, in the year 2024:

 

Bezos’s wealth increased by about $80 billion,

 

Zuckerberg’s by $113 billion,

 

Musk’s by $213 billion. None of these gains were taxed as regular income that year.

 

This form of taxation is very different from that of labor income whereby the tax is due immediately and the income is also subjected to payroll taxes.

Borrowing Against Wealth to Access Cash

Most of the time, the ultra-rich who decide to finance their lifestyles through the sales of stock refrain from selling shares to avoid the capital gains tax that would be incurred. Instead, they borrow against their assets to obtain a loan. The proceeds from a loan are in most cases not taxable, thus, this is a tax-free source of money that is backed up by highly valuable stock portfolios.

This move provides the richest people with the option of keeping the control of the assets (stocks) while at the same time, they are not creating taxable events.

Estate Tax and Wealth Transfer Loopholes

Although the estate tax laws are in place, there are loopholes that enable the wealthy to keep big portions of their fortunes almost tax-free for their heirs. Attempts that aimed at either lessening or totally eliminating the estate taxes, which at the time only affected the wealthiest, have now caused the taxes to lose their impact.

So in this way, huge fortunes may be transferred from one generation to another without significant tax events taking place - which in turn contributes to the problem of growing wealth inequality.