8 Totally Legal Tax Tricks Millionaires Use To Pay the Government Less

Finding ways to save on taxes is one of the best ways to get ahead financially. 

One of the best ways to cut your tax bill is to take lessons from millionaires, many of whom have spent a fortune working with tax professionals to identify every deduction and credit they can use to reduce what they owe the IRS.

Here are eight of those federal tax savings opportunities millionaires take advantage of that might work for you as well. 

Donating to charity is one way wealthy people save money on their tax bills to keep more money in the bank. But there are certain rules to follow if you want to get that break.

In general, deductions to a charity are deductible only if you itemize. Itemizing means you declare deductions for specific expenditures, rather than claiming the standard deduction. The standard deductions for 2025 are:

• $30,000 for married couples filing jointly
• $15,000 for single tax filers
• $22,500 for heads of household

Unless your charitable contributions and other deductions exceed that amount, it may make the most sense to claim the standard deduction instead. 

If you itemize and want to claim the charitable deduction, generally, you are limited to deducting no more than 60% of your adjusted gross income. However, there are some exceptions to that for qualified contributions. These include cash contributions to public charities or certain private foundations.

Property taxes are deductible, but again you will need to itemize to claim this deduction. You can deduct up to a total of $10,000 (for married joint filers) or $5,000 (for single tax filers) on your federal taxes. 

This $10,000 limit applies to state and local taxes, including property taxes and state income or sales taxes. Still, it could be a good way to reduce your tax burden.

If your property taxes and other deductions don't exceed the standard deduction, it probably doesn't make sense to itemize.

Depreciation refers to the loss in value of business property that occurs over time. For example, business equipment such as machinery loses its value over time as the equipment ages. 

If you have a rental property, depreciation can also occur when you make improvements that stay useful for several years, such as replacing a roof.

Wealthy people who own businesses or rental properties can deduct depreciation. Unfortunately, this is a form of tax savings you can take advantage of only if you own a rental property or a business with qualifying equipment.

There are numerous methods of calculating what this deduction is worth, but the simplest is the "straight line" method, which allows you to calculate your deduction using the following equation:

(Cost of the asset - the salvage value (what it's worth at the end of its estimated useful life)) / estimated useful life

This gives you the annual depreciation expense you can deduct when you file your federal taxes. However, there are annual maximums on the amount you can deduct. For the 2025 tax year, the maximum is $1.25 million.

You could deduct necessary business expenses commonly accepted in your trade or business. 

For example, if you run a store, you could deduct the cost of goods sold from your federal taxes. Or if you're a freelancer, you might be able to deduct costs related to your business website. This is something that wealthy business owners might do to reduce their tax burden.

Pro tip: Again, you need to have the business income to take advantage of this tax savings opportunity. Tax software can help you identify deductions for your business if you run a company of your own. 

Millionaires often earn investment income in addition to traditional income, and this might provide certain federal tax benefits. You might be able to take advantage of these tax benefits, provided you buy investment assets and profit from them.

Investment income can have a relatively low capital gains tax rate, provided you hold the investment for over a year. The capital gains tax rates depend on your income and tax filing status and are as follows:

If you do not own your investments for over a year, though, you will be taxed at the short-term capital gains tax rate, which is equal to your ordinary income tax rate. This tax rate can be up to 37%, depending on the following tax brackets:

You could also reduce your capital gains taxes if you sell investments at a loss. These losses can be used to offset gains, potentially reducing your tax burden.

The step-up basis is a fundamental way wealthy people avoid paying taxes when their investments increase in value. 

When an asset is sold at a profit, it's taxed. However, if the asset isn't sold but instead passed on to an heir, then the asset's value is adjusted to its worth at the time of the death.

Say, for example, a wealthy person bought an investment for $10,000, held onto it for a very long time, and its value went up to $100,000. If the person died, someone would inherit the investment. 

When they do, the stepped-up basis will adjust the value of the asset to $100,000. If the person who inherited then sold the asset the next day for $100,000, no capital gains taxes would be owed on it. So $90,000 in profits would have gone untaxed.

Anyone could take advantage of this tax benefit, provided they don't sell assets that have increased in value but rather leave them to loved ones to inherit.

Trusts are a key tool for avoiding inheritance or estate taxes. You can create an irrevocable trust and transfer assets into it. 

The trust becomes the owner of the assets, and the person who created the trust can name their heirs as the trust's beneficiaries when they die.

Because the assets don't pass through probate and aren't inherited in the traditional sense, no estate or inheritance tax is owed. Anyone could take advantage of this, but creating a trust can be expensive and involve giving up some control over the property.

It's also not necessary for most people because only a few states charge inheritance tax. And for the tax year 2025, estate tax at the federal level isn't charged until the estate is valued at $13.99 million or higher.

Millionaires might also use family-limited partnerships to avoid high estate taxes. A partnership is created and ownership of assets is transferred to it. 

Heirs are gifted an ownership interest in the partnership, and the value of that ownership interest is discounted under estate tax rules.

This reduces the amount of assets that transfer through probate and are considered part of the taxable estate. But, again, there are costs involved with setting up a family limited partnership. 

It's not normally necessary to do this unless you have a substantial estate that would be subject to tax.

Taking control of your federal tax bill is one of the best and most important things you can do when figuring out how to manage your money effectively. 

After all, taxes can be a huge expense. If your goal is to build wealth, you don't want to pay more taxes than necessary. 

The good news is that some of these eight opportunities for tax savings might work for you, and next year, you might pay a little less when you file your tax return.