The business money need not flow through to their owners. It can instead show up as unrealized capital gains, which A) gets taxed at a lower rate than ordinary income, B) can be deferred indefinitely, C) can be cheaply borrowed against for tax-free spending money, and D) gets wiped out when the shares are transferred via inheritance or in-kind charitable contribution.
If you have $10M of non-dividend paying stock, you could conceivably spend $200k per year while having a taxable income of zero and remaining eligible for income-based health insurance subsidies.
I often hear about C), but I have never heard an explanation of how it works.
I understand that if you have tons of valuable assets, you can get a loan against them for a very favorable rate. but then you have to pay back the loan or at least pay the interest on it. how do you do that without having at least some income or realizing some capital gains?
Your assets tend to become more valuable over time, which allows you to borrow more money to pay the interest and give yourself spending money.
Eg, suppose you have $10M in assets and borrow $200k against it. Next year it's worth something like $10.7M on average, you get charged something like $8k in interest, and you borrow another $200k to spend. So long as you leave enough of a buffer against volatility and the rate of growth of your assets is high enough, you can just borrow money indefinitely against appreciating assets.
People did this in the run-up to the 2008 housing crisis with homes, too. Take out a loan, cash-out refinance later when it's worth more, end up with a house you've taken more cash out of than put in.
If you have $10M of non-dividend paying stock, you could conceivably spend $200k per year while having a taxable income of zero and remaining eligible for income-based health insurance subsidies.