Self-made millionaire and motivational speaker Grant Cardone sparked controversy with a recent claim that the ultimate goal for the wealthy is to "earn no income."
Speaking at a conference, Cardone argued that true financial success lies not in maximizing earnings but in minimizing taxes. He contends that high earners often face exorbitant tax burdens, leaving them with a fraction of their income. In some cases, top earners can give away more than half of their earnings to the government.
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By saying "earn no income," Cardone emphasizes the importance of structuring your financial affairs to minimize tax liability. It's about generating wealth through strategies that produce income taxed at lower rates or are tax-deferred altogether.
To illustrate his point, Cardone highlighted the income tax strategies employed by several high-profile billionaires. Warren Buffett, for instance, has maintained a modest $100,000 annual salary for decades, while Jeff Bezos and Mark Zuckerberg draw even less. The billionaires' minimal salaries starkly contrast their immense wealth, primarily from stock ownership.
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By keeping their taxable income low, these billionaires significantly reduce their tax liabilities. If Bezos, for example, took a salary of $10 million, he'd likely forfeit half or more to taxes. In contrast, the majority of their wealth is tied up in company stock, which is subject to more favorable tax rates upon sale and offers the potential for substantial long-term growth.
Not all income is created equal when it comes to taxes. While paychecks are subject to ordinary income tax rates—often the highest—other types of income are taxed differently. For instance, certain investments can generate income taxed at significantly lower rates or even be tax-deferred. Understanding this distinction is crucial for maximizing your earnings and minimizing your tax bill.
Capital gains are the profits you make when you sell an asset for more than you paid. These assets can range from stocks and bonds to real estate or collectibles. The tax you owe on these gains depends on how long you hold the asset.
If you sell an asset within a year of buying it, the profit is considered a short-term capital gain and is taxed at your ordinary income tax rate – the same as your wages. But if you hold onto the asset for more than a year, the profit is considered a long-term capital gain, which is generally taxed at a lower rate.
Cardone often touts real estate as a tax-efficient investment vehicle. When property values rise, owners can sell and pay capital gains tax, which generally is lower than ordinary income tax rates. However, there are strategies to defer these taxes altogether. One method is a 1031 exchange, where you reinvest the proceeds from the sale of one property into another, postponing capital gains.
While Cardone's strategy of minimizing taxable income is effective for billionaires with vast stock holdings, it's largely impractical for average people. Most individuals rely on consistent income to cover living expenses and build wealth gradually. Unlike billionaires who can afford to live off investments and forego a traditional salary, the average person needs employment to generate income.
The ultra-wealthy’s complex tax code and strategies often require significant financial resources and expertise. Tax planning for high-net-worth individuals involves specialized professionals and sophisticated financial instruments beyond most people’s reach. For the average person, focusing on building a strong income foundation, saving diligently, and investing wisely is a more realistic path to financial security.
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