"In this world nothing is certain but death and taxes." - Benjamin Franklin
Annual Income VS. Net Worth
Taxes is something every good contributing citizen experiences. Taxes can account for a large percentage of your expenses. There is a good chance its costing you more than your mortgage. Yet billionaires are able to get away paying next to nothing. How is this possible?
The simple thing to understand is the difference between income and net worth. You make a salary every year, and you get a W2, or 1099. That income is taxable. Warren Buffett took a annualized salary of $100k/year for the longest time. However, his net worth is in the billions! How is this possible?
Like many other billionaires, he has his net worth tied up in assets like stocks. You see, when assets like real estate or stocks appreciate in value, you typically don’t pay taxes on them unless you sell. There are so many tricks you can use with stocks and real estate regarding taxes, that you can come close to paying nothing if utilized correctly.
When you see Elon Musks net worth approaching 400 billion, chances are he has all his worth tied to assets, eliminating having to pay as much in taxes.