How is it that some high net-worth individuals are able to avoid paying taxes completely?


Answer: The Internal Revenue Service (IRS) taxes regular income and investment income differently. For one type of common investment income i.e long term capital gains, the tax rates are 0%, 15% and 20% based on the annual income of the individual. The income used for calculating the above rates doesn't include income from the long term capital gains itself. For example, if an individual makes less than $41,675 for the year 2022 through regular income, his or her capital gains tax rate would be 0% even if the long term capital gains itself is more than a million dollars. Assuming many of these high net-worth individuals don't have any regular income and all their income is through long term capital gains, they end up paying no taxes at all.