Bootstrappers.com did a profile on me. Learn how I built Kilo to $3M ARR in less than 3 years.
But we digress.
Today’s newsletter isn’t about making more. It’s about keeping more.
That’s right, we’re talking taxes.
The hard truth is that most entrepreneurs overpay because they don’t have access to $1,000+/hr tax strategists.
Luckily you read the Grow Your Business newsletter, so you get to learn the best strategies for free.
“Nothing is certain except death and taxes”
Qualified Small Biz Stock
If you buy shares in a C-corp at the “original issue” & hold for 5 yrs, you’ll avoid capital gains tax on the $10M in profits when you sell your company.
The best part is that your wife & kids can own QSBS too.
The Roblox founder used the QSBS tax break at least a dozen times to avoid tax on $120M of gains.
If you buy a car that weighs over 6,000 lbs. and use it for business, you depreciate 100% of the purchase price the first year you own it.
Some biz owners use it to buy G-Wagons or Bentley Bentaygas with pre-tax money.
If you were to buy a $200,000 Bentayga with post-tax money, it’d cost you ≈$280,000 in pre-tax money.
With Section 179 you can buy the $200,000 SUV with pre-tax money AND avoid about ≈$80k in taxes.
Check out this ad from a Bentley dealer:
Need to go somewhere for business?
You can buy a private jet and write off the entire cost the first year you own it.
Here’s how Grant Cardone dodged an 8-figure tax bill by buying a $50M jet.
8 states have no state income or capital gains tax.
This can save 10%+ on every dollar you earn.
But if you really hate tax, move to Puerto Rico and take advantage of Act 20 & Act 22. These allow you to avoid federal income AND capital gains tax.
During the crypto boom, Americans were moving down there in droves, which skyrocketed the price of luxury real estate.
Guess this real estate market:— Sean O'Dowd (@SeanODowd15) September 21, 2022
Condo's appreciated from ~$2M to ~$15M in 24 months
Lots of great guesses here-including a lot of right answers— Sean O'Dowd (@SeanODowd15) September 21, 2022
Answer: Dorado Beach, PR
This is a super nice place to live if they’re in PR
It exploded in price due to COVID and crypto’s bull run. No capital gains on crypto in PR!
Unrelated: After I sold my gyms in 2019, I toured some condos in Dorado Beach & passed. Casual $13M mistake.
You can rent your home to your business for 14 days each year and write it off.
If you live in an area with expensive short-term rental rates, you can save $10k+ in taxes.
If you have a business, you can pay your kids to work in it.
As long as their pay is under the standard deduction of $12,950, they won’t need to pay taxes or file a tax return.
This reduces your taxable income by $12,950 per kid.
Short Term Rentals
You can depreciate ≈20-30% of a property’s purchase price the first year you own it by:
1. Getting a cost segregation study
2. Using the property as a short-term rental
Some Doctors use this strategy to shield 6-figures of annual income.
Own a one-person business?
With a SEP, you can put $61,000 a year of pre-tax money into a tax-deferred retirement account (≈10x more than a traditional IRA.)
I know an independent consultant who makes ≈$90k a month & uses a SEP to reduce his tax bill substantially.
S-Corp Reasonable Comp
S-Corp owners get paid a salary & distributions.
Every $1 of salary requires an additional 15.3% in payroll taxes.
The trick is to pay yourself the lowest “reasonable” salary & take the rest as a distribution.
What constitutes “reasonable comp” is debated amongst CPAs. If you shoot too low, the IRS will go after you.
That’s it for this week.
Remember, I am a random dude on the internet who isn’t a CPA. Consult a tax professional before implementing any of this stuff.
Until next week,