The ultra-rich in the United States of America have found ways to avoid taxes, and the problem is getting more severe as the days pass. The latest billionaire in the crosshairs is Nvidia’s CEO, Jensen Huang, who, according to some sources, has saved more than $8 billion in taxes by exploiting the loopholes in the system and citing previous precedent to justify his SEC filings.
According to the USA tax code, at the time of Mr Huang’s death, he would have to pay a 40% tax on his $127 billion estate. However, Huang, like many before him, has found a way to avoid paying taxes by performing several manoeuvres and exploiting the loopholes in the system. According to many sources, like the New York Times, Jensen has avoided more than $8 billion in taxes. He has an army of lawyers who get paid $1000 an hour to come up with solutions to his tax problems.
One strategy Huang uses is to set up irrevocable trusts and put his company shares in them because this way, the trust is only viable for capital gain taxes and not gift and estate taxes, which are significantly lower than the latter two. In 2012, Huang and his wife, Lori, moved 584,000 shares to the fund, which were worth $7 million at the time. Any capital gains in the shares are not taxed immediately, keeping them whole. Moreover, at the time when the shares are sold, a 23% tax will be charged on the capital gain, which is far less than the estate tax, which is at 40%. But, Mr Huang will never sell the shares. Instead, he will set up another trust and move the shares there and will only be charged transfer fees and no taxes.
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So, the $7 million Huangs have in shares in a fund are now worth $3 billion, which, if he were to pass on to his children, would be taxed 40%. However, by using this method, he will only have to pay a couple hundred thousand dollars. This way, the majority of his net worth will go to his children, and the tax would be like taking a drop of water from the ocean.
M. Huang, who is the CEO of the second most valuable company in the world, isn’t the only one who uses this technique. Rather, most of the business tycoons in America use this technique to avoid tax when they transfer their money to their heirs. As Donald Trump is to take the President’s office for the second time, it is expected that he might lower the tax rates for business leaders, which could also impact the funding that federal agencies like the IRS receive. This will make catching tax fraud even more difficult than it already is.
