11 Financial Tactics Wealthy People Use to Build and Protect Their Money

Many of these same principles are available to everyday business owners and investors.

When it comes to money, the wealthy don’t necessarily earn more by chance — they earn smarter. The biggest difference isn’t access to secret deals or hidden loopholes; it’s their understanding of how financial systems work.

Through careful structuring, tax planning, and disciplined investing, affluent individuals build wealth that grows quietly and efficiently behind the scenes. The good news? Many of these same principles are available to everyday business owners and investors.

Let’s explore 11 financial tactics the wealthy use to minimize taxes, preserve capital, and keep their fortunes growing over time.

1. Borrowing Against Instead of Selling Assets

This method allows them to fund lifestyles tax-free.

Rather than cashing out investments — and triggering capital gains taxes — affluent individuals often borrow against their holdings. By using stocks, real estate, or businesses as collateral, they can access cash at low interest rates while their assets continue to appreciate.

Because loan proceeds aren’t considered income, this method allows them to fund lifestyles tax-free. When the assets are eventually passed to heirs, the tax basis resets — effectively erasing decades of unrealized gains.

2. Paper Losses, Real Profits: The Power of Real Estate Depreciation

This reduces taxable income while cash flow continues to come in.

Real estate offers a unique accounting advantage: depreciation deductions. Even as a property increases in market value, the IRS allows investors to record an annual “loss” based on its theoretical wear and tear.

This reduces taxable income while cash flow continues to come in. Combined with deductible mortgage interest and capital gains deferral strategies, real estate becomes a dual-purpose tool for both income and tax efficiency.

3. Generational Wealth Through Legacy Trusts

Helps limit exposure to estate taxes, lawsuits, and creditors.

A legacy or dynasty trust helps families transfer wealth to children, grandchildren, and beyond — while limiting exposure to estate taxes, lawsuits, and creditors.

Once the trust is established, assets can remain protected for generations, managed under clear rules for distribution. It’s a favorite structure for families aiming to preserve business ownership or long-term real estate holdings.

4. Swapping Investments Tax-Free: The Property (1031) Exchange Strategy

Lets investors grow their portfolios by rolling profits forward, deferring taxes indefinitely.

Under Section 1031 of the tax code, investors can sell one investment property and reinvest the proceeds into another of similar nature without paying capital gains taxes right away.

This “like-kind exchange” lets investors grow their portfolios by rolling profits forward, deferring taxes indefinitely. Over time, that compounding effect can mean significantly more wealth compared to selling and paying taxes with each transaction.

5. Controlling Charitable Giving Through Private Foundations

Receive immediate tax deductions — yet still influence how the funds are used.

High-net-worth individuals often establish private charitable foundations. By donating their own money into these organizations, they receive immediate tax deductions — yet still influence how the funds are used.

This allows them to combine genuine philanthropy with smart financial planning. They can support meaningful causes, maintain family involvement, and reduce taxable income simultaneously.

6. The Smart Business Owner’s Paycheck Split

They pay themselves a “reasonable” salary and take the rest as owner distributions, which are exempt from self-employment tax.

Entrepreneurs who form S-Corporations can structure their earnings strategically. They pay themselves a “reasonable” salary (subject to payroll taxes) and take the rest as owner distributions, which are exempt from self-employment tax.

This can cut the tax burden by thousands each year while staying fully compliant. It’s one of the simplest — yet most effective — ways to increase net take-home pay for small business owners.

7. Investing for Impact: Opportunity Zones

If the investment is held for a decade or longer, all appreciation can become tax-free.

Opportunity Zone funds encourage investment in underdeveloped areas by offering generous tax benefits. Investors who reinvest capital gains into these projects can defer — and in some cases eliminate — those taxes entirely.

If the investment is held for a decade or longer, all appreciation can become tax-free. It’s a socially conscious way to grow wealth while supporting community revitalization.

8. Using International Structures for Tax Efficiency

Global businesses can optimize how and where their profits are taxed.

By setting up foreign subsidiaries or intellectual property entities in countries with lower tax rates, global businesses can optimize how and where their profits are taxed.

While highly regulated, this approach — often referred to as tax jurisdiction planning — is used legally by major corporations and investors to keep more of their earnings within the framework of international law.

9. The Triple Tax Advantage of Health Savings Accounts

Unused funds can stay invested for decades, turning your HSA into a stealth retirement account.

A Health Savings Account (HSA) is one of the most overlooked yet powerful financial tools available. Contributions are pre-tax, investments grow tax-free, and withdrawals for qualified medical expenses are also tax-free.

Unused funds can stay invested for decades, turning your HSA into a stealth retirement account. After age 65, withdrawals for non-medical expenses are treated just like those from an IRA — with standard income tax but no penalties.

10. Building Private Wealth with Cash-Value Life Insurance

Infinite banking — effectively turns your life insurance into a personal lending system.

Permanent life insurance policies, such as whole life or indexed universal life, allow policyholders to build cash value over time. The money inside the policy grows tax-deferred and can be borrowed against tax-free.

This technique — known as infinite banking — effectively turns your life insurance into a personal lending system. You maintain liquidity, avoid taxable events, and still leave a death benefit for your heirs.

11. Picking the Right State for Your Business Entity

Not all states treat businesses equally.

Not all states treat businesses equally. Forming or moving your company to Nevada, Wyoming, or Delaware can offer big advantages: no state income tax, no franchise tax in some cases, and strong legal protection for owners.

For small business owners, choosing the right state can mean lower costs, fewer compliance headaches, and better long-term asset protection.

Final Thoughts

The tax code rewards long-term investing, responsible risk-taking, and thoughtful business planning.

These tactics aren’t about evading taxes or gaming the system — they’re about learning to use the system wisely. The tax code rewards long-term investing, responsible risk-taking, and thoughtful business planning.

Here’s what to take away:

• Smart structure beats high income. Organization and foresight create sustainable wealth.

• Tax planning is year-round. The wealthy don’t wait until April — they plan every decision in advance.

• You can start small. Strategies like HSAs, S-Corps, and property exchanges are accessible to many professionals today.

True financial freedom isn’t about how much you earn — it’s about how strategically you manage and protect what you already have.