questtic

Hello there! Welcome to another episode of “How Rich People Save on Their Taxes!”

Ever wondered why buyers shell out hundreds of millions for paintings?

Spoiler: it’s less about the art and more about dodging taxes. In this blog, we’ll elaborate on it so we can uncover the secrets behind it. So, let’s go!

Why Do the Rich Buy Art?

In November 2017, Leonardo da Vinci’s “Salvator Mundi” sold for a mind-boggling $450 million, smashing records for the most expensive painting ever sold. The fine art world is filled with such jaw-dropping examples.

Are the Ultra-Rich Really into Art?

Not really. Paintings are just a super-clever way to avoid taxes. Here’s how it works:

Imagine you’re one of the ultra-rich and you’ve made a cool $10 million this year. But now, you’re staring down a hefty 40% income tax bill, which means handing over $4 million to the government. No thanks, right?

You can imagine the heart ache caused just by learning that almost half of your hard-earned money goes to the government, which they might not even use effectively for the betterment of your life. Hence, the rich try to smartly save money using the following tactics:

The Clever Plan

1. Buy Art: You head to an art auction in Switzerland and buy a $500K painting.
2. Hype It Up: Paintings don’t have fixed values like stocks or property. So, you get your art dealer friends to hype up your painting, driving its value up to $3M in a few months.
3. Donate and Deduct: You donate the $3 million painting to a museum. Since it’s considered a charitable act, you get to write off $3 million from your taxable income.

Now, instead of paying taxes on $10 million, you only pay taxes on $7 million. That means you pay $2.8 million instead of $4 million, saving you $1.2 million. Genius, right?I know. These rich people really know how to play the game!

But don’t worry, you can learn these tricks too. Just stick with us and learn something new every day. We have lots of helpful tips on our website about how money works.

Now, let’s get back to our topic!

But What About Sales Tax?

Good question! Usually, there’s an 8–10% sales tax on the purchase, but they dodge this too by storing the painting in “Freeports.” These are tax-free warehouses near airports, where the painting sits until it’s time to donate it. So, they avoid even looking at it, let alone paying sales tax.

So, next time you see a ridiculously expensive painting, just remember: it’s not just art—it’s a tax strategy.

Money Laundering

Money laundering is another illegitimate use of the art market by the financially privileged. The frequent overpriced transactions and anonymous dealings in the art market make it an ideal place for laundering money. Wealthy individuals often buy art anonymously to hide their identity and launder money, storing it in freeports or warehouses to make it disappear from regulatory scrutiny.

While in storage, the art’s value is artificially inflated through fake sales and manipulative deals. For example, a wealthy individual might buy a painting, hide it in a warehouse, and use artificial dealings to inflate its price. Once the value is significantly increased, they sell the artwork at the inflated price, converting illegal funds into legitimate income. By employing these strategies, wealthy individuals can launder large sums of money and turn their illicit earnings into clean, legal income.