How the Rich Report Less Income Than You Do
Most of us were taught that building wealth means working harder, saving more, or getting promoted. But the truth is, the wealthy don’t play by the same rules—they use entirely different strategies to grow and protect their money. These aren’t shady loopholes. They’re 100% legal—and shockingly underused by everyday families.
In this post, I’m breaking down 10 high-impact, low-visibility money moves that the wealthy use to stay ahead. Even if you’re just getting started with your financial journey, many of these can be adapted to build your own version of lasting wealth.
Because wealth isn’t just about income—it’s about knowing how to keep and grow what you earn.
Let’s dive in.
1. They Use Trusts to Protect and Transfer Wealth
Trusts aren’t just for millionaires. Wealthy families use them to:
- Separate control from ownership (for privacy + protection)
- Avoid probate and legal delays
- Pass down assets tax-efficiently
- Keep family wealth intact through generations
Starter Tip: Consider a living trust if you have real estate, children, or family valuables. It’s easier than you think—and online tools like Trust & Will make it accessible and affordable.
2. They Pay Themselves Through Loans, Not Salaries
Instead of taking large paychecks, many wealthy entrepreneurs:
- Borrow against their assets (loans = not taxed)
- Use collateral (like stocks, real estate)
- Avoid income and payroll taxes
This keeps their taxable income low on paper, while giving them access to liquidity.
Starter Tip: Learn how secured personal loans work and why having assets opens new financial doors. You don’t need millions—just good planning and a solid credit profile.
3. They Deduct Depreciation on Appreciating Assets
Real estate is the crown jewel of tax-savvy investing. Here’s the kicker:
- Property gains value over time
- But on paper, the IRS lets you claim it’s losing value through depreciation
- This creates phantom losses you can deduct from income
Add cost segregation to speed up deductions and you’ve got one of the best tax shelters around.
Starter Tip: Talk to a CPA about depreciation if you own or are buying property. It’s one of the few ways to get “tax losses without losing a dollar.”
4. They Hire Their Kids (Yes, Legally)
Wealthy families pay their children through the family business. Here’s why:
- Kids earn tax-free income (up to the standard deduction)
- The business deducts their wages
- Money can be put into Roth IRAs (tax-free retirement growth)
- Teaches responsibility + builds early wealth
Starter Tip: If you run any side hustle or business, explore hiring your children for age-appropriate work. Even simple tasks like social media, mailers, or admin count.
5. They Don’t Own Homes—Their LLCs Do
Instead of buying a home in their name, the wealthy often:
- Have an LLC own the property
- Pay “rent” to the LLC
- Deduct the rent
- Keep personal liability off the books
The result? Their homes become assets, not liabilities.
Starter Tip: Talk to a real estate-savvy attorney about LLC property ownership—especially for short-term rentals or investment properties.
6. They Use Holding Companies for Structure
Think of this as a financial umbrella:
- One holding company owns multiple LLCs
- Each LLC isolates risk
- Ownership becomes difficult to trace
- Taxes are streamlined across businesses
It’s how you build an empire quietly—and safely.
Starter Tip: If you run more than one business or property, a holding company can help organize and protect your income streams.
7. They Use S-Corps for Tax-Smart Dividends
S-corporations are loved by tax pros because they let owners:
- Pay themselves a modest salary (taxed normally)
- Take the rest as distributions (not subject to self-employment tax)
- Save thousands per year in taxes
Starter Tip: If you’re making over ~$40K/year with a business or side hustle, ask your accountant whether switching to an S-corp structure makes sense.
8. They Use 1031 Exchanges to Delay Taxes
When they sell real estate, the wealthy don’t cash out. They exchange:
- Use 1031 exchange rules to roll profit into a new property
- Avoid capital gains taxes
- Grow wealth tax-deferred
Starter Tip: If you sell investment property, a 1031 exchange may let you reinvest without paying taxes now. Huge for long-term growth.
9. They Lease Instead of Buy
Wealthy families lease:
- Cars
- Property
- Even jets
Why? Because leasing allows them to:
- Write off monthly costs as business expenses
- Avoid large upfront costs
- Sidestep luxury or depreciation taxes
Starter Tip: If your business uses a car, leasing it under the company name may be smarter than buying.
10. They Delay Taxes (Legally) to Use Time as Leverage
The ultra-wealthy use strategies that buy them time:
- Deferred compensation plans
- Cost segregation
- Retirement accounts
- Installment sales
Because the longer they keep money untaxed, the more it grows.
Starter Tip: Look at HSAs, IRAs, or deferred savings tools to delay tax payments while growing your money in the meantime.
Conclusion
These strategies may sound advanced, but they all stem from the same principle: the wealthy don’t just make more—they keep more by understanding how the system works.
Here’s the truth: you don’t need to be a millionaire to use these moves. You just need to know they exist—and start applying the ones that fit your life and goals.
Start small. Pick 1 or 2 from this list that you could act on this month. Whether it’s starting a trust, opening a Roth IRA for your kids, or shifting your side hustle to an S-corp, every move builds momentum.
Because the real secret to wealth isn’t just income—it’s strategy.
