The tax code isn’t a secret. It’s a 75,000-page document anyone can read. But the people who build serious wealth don’t just read it. They use it.
Not illegally. Not even aggressively, in most cases. They use strategies that are available to almost anyone but utilized by almost no one. The difference between a high earner who consistently loses 40% of their gains to taxes and one who keeps compounding isn’t luck or loopholes. It’s structure.
Here’s how it works.
Borrow Against It. Don’t Sell It.
If you’re a founder or an executive whose net worth is concentrated in stock, whether public or private, your instinct is to sell when you need cash. That’s a taxable event. Capital gains hit. Your position shrinks. The compounding stops.
You don’t have to do that.
Instead, you can borrow against your holdings. If you have a $100 million stock portfolio, odds are you can borrow up to 70% of its value. That’s more than enough to live on. You’re not selling. You’re not generating income. And borrowed money isn’t taxable.
You live on borrowed funds. The stock keeps compounding. When you need to, you sell just enough to service the debt. The rest stays untouched.
This works with public stock, private stock, and even whole life insurance policies. You can buy a $30 million ranch and finance your life around it without triggering a tax bill, because borrowed money isn’t taxable income.
A Paper Loss that Appreciates
The second strategy is depreciation.
The IRS lets you deduct the declining value of an asset against real income, even though no cash left your pocket. Some assets even qualify for bonus depreciation, meaning you can depreciate 100% of the value in year one.
You can bonus depreciate equipment, vehicles, even aircraft. I’ve done it. But equipment has a problem: it depreciates on paper and in real life. That’s why many high-net-worth investors choose real estate; it’s a paper loss that can sell for more than you bought it.
You can’t bonus depreciate a whole property. But an apartment building, for instance, is really hundreds of assets: water heaters, HVAC units, cabinets, wiring, flooring. A cost segregation study breaks the property into its component parts, each with its own depreciation schedule. Typically, 30-40% of a property’s value lands on schedules short enough to qualify for bonus depreciation. The rest depreciates steadily over three to four decades.
Two caveats. First, this is tax deferral, not elimination. When you sell, you face recapture at 25%. But that’s lower than the 37% you deferred, and you got to make your money work for you in the meantime. Second, these paper losses will be passive by default. That means they can only offset passive income. If you want to offset active income, like a salary, you or your spouse will have to meet the IRS’s qualifications for a real estate professional.
Oil, Gas, and the Depletion Allowance
The third strategy concerns oil and gas.
If you drill a well, your costs break into two categories: tangibles and intangibles. The intangible drilling costs (things like labor, chemicals, mud, grease, everything that doesn’t have salvage value) can often be deducted in the first year. That’s a significant upfront write-off.
But the real advantage is depletion. If you own minerals and receive oil and gas revenue, you automatically get a 15% depletion deduction off the top. So, if you’re earning $100,000 a year from your minerals, you only pay tax on $85,000. That’s a paper loss. You’re still collecting the full amount. You’re just not taxed on all of it.
It doesn’t stop there. You can borrow against your mineral rights, just like you borrow against stock. That creates interest expense, which reduces your taxable income further. So now you’re collecting royalty income, taking a 15% depletion deduction, and offsetting what’s left with interest expense on the borrowed amount.
Stack those together and your taxable income drops fast.
The Common Thread
All three of these strategies do the same thing: they reduce your reported income without reducing your actual wealth.
None of it is hidden. It’s just using the tools that the tax code has put at your disposal.