Thread by @ankurnagpal

I sold my startup 2 years ago

I knew nothing about personal finance when I set up my business

But at acquisition, I realized there were lots of things I *should* have done from a tax & estate planning perspective

This is what I would do today (aka learn from my mistakes)

👇👇

Some disclaimers before we dive in:

- I am NOT a lawyer, talk to a professional as well

- I did NOT do most of this since I was too late to learn about this

- This is the *short* version but I believe captures 90%+ of what's important

Why am I sharing this?

It's messed up that we don't teach anything about money to people

The more this information is gatekept, the more we propagate existing systems

The tax code is complicated af, and until we can change that, we should democratize access to information

Part 1 - Structuring Your Startup

If you build a company for enterprise value (vs cashflow) you should set up a C-Corp

What you want to pay attention to here is QSBS - "Qualified Small Business Stock"

Hold your QSBS stock for 5+ years & you pay no tax on $10M of gains

The QSBS $10M limit also applies on a per-shareholder basis

This means every single shareholder & investor also gets the same benefit

So instead of owning all equity yourself, you should have your trusts (more soon) & family members all buy shares in your startup and hold

What if you sell your business before 5 years?

You can perform a QSBS rollover & in 60 days, invest in another qualified small business & keep the clock ticking

Say you hold QSBS stock for 3 years before selling it, you then invest in another biz for 2 years and be eligible

It is 100% worth having your attorney look over the QSBS requirements & making sure:

1 - The business qualifies for all the criteria

2 - You have a clear list of things to look out for so you don't accidentally trip up the QSBS qualification

3 - You "multiply" shareholders

QSBS applies on a Federal level, some states also observe QSBS while others don't

I know some people who have moved states to save on QSBS taxes

Personally I think that's a terrible idea, and if you let taxes determine where you live, you're doing life wrong

But... you do you

Even if you do not hit the QSBS threshold:

You can have family members (not you or parents) buy shares early on from their self-directed retirement accounts

If they buy from their Roth IRA, the gains are tax-free

Even otherwise, the gains can compound tax-free

Sidenote: If you are likely to have multiple business interests, the structure that Alphabet / Berkshire Hathaway employs may be of interest to you

You can apply this strategy to each and every sub-corp separately, with different shareholders

Part 2 - Structuring Your Estate

Your estate is the sum of all you got (assets minus liabilities)

You want to be very thoughtful how you structure this for the sake of all your dependents - the ones you have, and the ones you will have in the future

You will die - or even if you are alive, you will want to share your wealth with your family

And if you have a large estate, your dependents will be taxed heavily on everything they receive unless you plan for this accordingly

Enter a Grantor Retained Annuity Trust, or GRAT

The way a GRAT works is:

- You move your shares to a GRAT with your dependents as a beneficiary

- The present value of your shares count as a "gift" (subject to gift tax) but all appreciation is transferred without any gift / estate taxes

So you wanna ideally set one up ASAP

Best case, you do this when you set up your startup so the entire upside is captured by your dependents

But this can still work as long as it's relatively early in your company journey

Allegedly, Mark Z placed FB shares pre-IPO in a GRAT that have since appreciated ~$50M

You can also set up non-grantor trusts for the benefit of your family

You have to appoint a trustee & lose control over the assets, but they serve as a QSBS "multiplier"

The $10M limit applies separately to you and each trust, while protecting the gains from gift & estate taxes

✅ All done

This is the quick & dirty version of what you should do early on

You can always dive further into the rabbit hole, but there are decreasing marginal returns

And other stuff (i.e. google "DING" etc) starts getting pretty shady and I'd avoid it

Final note - I wish I did this when setting up my startup, but I'm super happy about how everything turned out

Something I frequently think about:

The people who spend the most amount of time optimizing their taxes tend to be some of the unhappiest people I know...