How Do Billionaires Avoid Income Taxes?

How Elon Musk and other CEOs leverage debt.

Photo by The New York Public Library on Unsplash

Elon Musk has made national headlines multiple times by avoiding income taxes despite his billionaire status and high net worth.

Now, I know the majority of Americans might say that billionaires should pay more in taxes. I certainly understand the argument, but whether or not billionaires should pay more in taxes is not what I’m here to dispute. I’m merely trying to pinpoint some of the tax strategies billionaires are using.

As a finance and economics enthusiast, I can’t help but wonder: how are these billionaires managing to avoid income taxes?

Let’s take a look at a strategy many billionaires are using to avoid high tax bills:

Leveraging Against Equity

Let’s stick with the example of Elon Musk.

Musk’s personal wealth is tied up in public equity (stock) ownership of Tesla and private equity ownership of SpaceX, so his cash flow is very low. In fact, Musk hasn’t taken a base salary since 2019.

In order to increase his cash flow, Elon could sell shares of Tesla or sell an equity interest in SpaceX. But selling shares of Tesla would incur high capital gains taxes, and giving up equity ownership of SpaceX could…