Ankur Nagpal Profile picture
Jun 30, 2022 17 tweets 4 min read Read on X
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 Image
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 Image
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...

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More from @ankurnagpal

Nov 6
Just spoke to a founder who could pay zero taxes on more than $400M when they sell their company

It's completely insane tax jiu-jitsu yet fully legal with how the law is written

Here's how they set it up:
Most people have heard of QSBS or Qualified Small Business Stock, the most generous tax break for startups

QSBS allows you to pay no taxes on $10M when you sell your company... or 10 times your basis (whichever is more)

The trick here lies in the second part!
What this founder did is started their company as an LLC vs a C-Corp

This is because in the early days the business was losing money, and those pass-through losses help them offset taxes

Eventually, the company started doing well and they then flipped it into a C-Corp
Read 6 tweets
Oct 17
Peter Thiel just turned 57 years old

In less than 3 years, he will get access to the $5B (yes, billion!) dollars locked away in his Roth IRA

The best part? He will not owe a single dollar of taxes on it

Here's how he set it up (& how you can emulate the strategy):
Everyone has access to a Roth IRA

You can put in up to $7,000 a year in after-tax money and invest it in anything you like

Your dollars compound tax-free and you will owe ZERO taxes on the balance in retirement

No matter how high tax rates go in America!
When Thiel set up his Roth IRA, the annual limit was only $2,000

But instead of spending the $2K buying stocks or ETF's, Thiel used $1,700 to buy 1.7 million founder shares in Paypal at $0.001

When Paypal sold to eBay, that transaction made him $25M+ tax-free in his Roth IRA!
Read 7 tweets
Oct 9
A buddy of mine will earn $500K+ this year as a one-person business in a high tax state

If they don't do anything, they would have to pay a tax bill of ~$250K between federal, state & self-employment taxes

Here's what I told them to save 6-figures in taxes this year alone:
1 - Choose to file your taxes as an S-Corp

This bifurcates your salary into a fair W-2 income you pay yourself & the rest is distributed as profits

You only have to pay self-employment taxes (social security & medicare) on the W-2

This alone saves many thousands of dollars
2 - Have a CPA calculate the optimal W-2 salary to pay yourself

You don't want the lowest possible W-2 salary since that could reduce your Qualified Business Income or QBI deduction

Plus, it limits how much you can contribute to a retirement plan

Pay a pro to calculate this!
Read 7 tweets
Oct 7
No one pays more in taxes in America than W-2 employees with a high salary

But, there are still lots of tricks in the tax code you can use to pay less

Here are 12 strategies an employee with a high salary can use to reduce their tax bill before the end of the year:
1 - Donate to charity

Use a Donor-Advised Fund (DAF) to donate money to charity - this gets you a big deduction upfront & you can give to charity on your own timeline

Instead of contributing cash, donate appreciated assets like company shares for an even bigger deduction
2 - Max out your 401k plan at work

Contribute the full $23K as an employee pre-tax contribution & get the maximum employer match

Total 401k contributions are capped at $69K / year so see if your plan allows you to contribute the rest as "mega backdoor Roth" contributions
Read 13 tweets
Sep 4
There is a special type of retirement plan almost no one knows about

You could use it to stash away literally hundreds of thousands of dollars every single year

Here's how a cash balance plan works (& how we used it to save a business owner $100K+ every year):
Most people are familiar with a 401k plan from work

These plans are great, but are capped at a maximum contribution of $69K / year

That can be a lot of money if you're making $150K a year.. but for super high income earners, that's not enough!

Enter the cash balance plan
A cash balance plan is a type of "defined benefit" plan

These plans work backwards from giving you ~$3.5M in retirement

The amount you can contribute is calculated based on your salary & age and factors in investment growth

And for the right person can be $200K+ every year!
Read 6 tweets
Aug 27
A common misconception:

Money in your 401k and IRA's are locked away until you retire

Let me show you FIVE powerful strategies to access dollars in your retirement account any any age at all:

(bookmark this post for later)
1 - Borrow up to $50K from your 401k (or $100K if married)

You can borrow money from your 401k for any reason, at any time at all

Even though you have to pay a market interest rate, the interest goes right back into your 401k account!

Very powerful esp. with a Solo 401k
2 - Roth IRA Contributions

Did you know you can take out dollars you have contributed to your Roth IRA at any time at all?

There's no penalties or taxes due at all

You cannot withdraw earnings, but no taxes will be due until all contributions are withdrawn first
Read 7 tweets

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