38: Tax & Retirement Strategies To Do Before 2024 w/ Ankur Nagpal

0:00Hey everyone, and welcome back to the Rich Habits Podcast, a top 3 business podcast on Spotify. My name is Austin Hankwitz, and as always, I'm joined by my co-host Robert Croak. Robert is a seasoned entrepreneur in his 50s with more than 200 million in company exits under his belt, and I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world. Now, as the show name might suggest, every episode, we talk about rich habits as they relate to business, finance, and mindset.

0:39However, we try and bring you two unique perspectives. One from an industry veteran, which is Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. So, Robert, what are we going to be talking about in today's episode? In today's episode of the Rich Habits Podcast, we'll be talking about retirement and tax strategies every business owner and side hustler listening right now needs to implement before the end of the year. To help us with the technical aspect, we've invited Ankur Nagpal, CEO of CarryMoney.com, to break things down. Ankur was one of the co-founders of Teachable.com, a course-selling website I'm sure many of you listening right now have heard of.

1:20He sold that company for more than$250 million. Now he's building a new company entirely dedicated to helping side hustlers and business owners like us save on taxes while maximizing their retirement savings. Ankur, why don't you introduce yourself to all of our listeners? You introduced me very well, but yes, my name is Ankur Nakpal. I was a founder of a company called Teachable. I was fortunate enough to sell that business. And in the process, I learned so much about how the tax code works in America and specifically how much of the tax code is geared for business owners to help business owners save money on taxes.

1:55So the last two years have become an expert on this topic and I'm excited to dive in. This is going to be really fun, man. Like, I don't think that you understand, but literally 60%, I'd say, of the people listening right now have a side hustle. They have a small business, right? We always talk about what is that sort of unique perspective or skill set that you're sitting on and how can you monetize against that, right? Robert and I talk about side hustles that I had at a college like selling websites or, you know, side hustles that Robert has all the time. It's just we talk about this stuff. And unfortunately, a lot of those people also aren't experts on the tax code.

2:30You know, they know about write-offs, they know about this and that, but there's a ton more. It's like a Pandora's box, right? Once you open it up, it just keeps on coming out. So we're going to dive deep. We're going to go into the rabbit hole. We're going to be like Alice in Wonderland. We're going to take the red pill like on the matrix and we're going to figure this all out in today's episode. So kicking it off here with the first point I want us to dive deep into and that's the solo 401k. Now I use a solo 401k. I've actually invested$66 ,000 this year toward my solo 401k on carrymoney.com.

3:03But Ankur, can you break down for our audience one, exactly what the solo 401k is and two, how small business owners or that Uber driver or side hustler listening right now can leverage this for tax savings and retirement investing? Yeah. So a solo 401k, the way to think about it is it's the most powerful retirement account in America. And it's only available to anyone who's either a business owner or has a side hustle. But most people are familiar with their 401ks from work. But the downside with that is you can't customize it to do the things you want. A solo 401k is a 401k plan just for you.

3:38So you can basically build the coolest retirement plan ever. So I'll quickly hash out the benefits. One, it has super high contribution limits up to$66 ,000 this year, 69 ,000 next year. And the entire thing is one big tax deduction. Awesome. Two, because it's your own 401k plan, you can invest it in any asset you want. Most corporate 401k plans are very limited in what you can do with it. Your own 401k, you can invest it in individual stocks, funds, startups crypto whatever it's your plan third thing is it compounds tax-free so anything inside it keeps growing without having to pay taxes the fourth thing is it supports Roth contributions for those who know what that is you put in post-tax money but then never pay again I won't spend too long talking about the mega backdoor Roth but it's a crazy tax move where you can actually make the entire$66 ,000 contribution as Roth and it even has more flexibility than other plans.

4:31Like let's say you want to borrow money from your own 401k, you can borrow up to$50 ,000 or 50 % of your account, whichever is higher from your own plan and you pay yourself back. So it's super flexible. And it's the sort of thing that most business owners are blown away when they hear about this. And most people don't know it exists. And that's what I was two years ago. I didn't know this existed. And I then looked for a platform to do this and couldn't find it. So we built it. But really, it's the most powerful retirement account in America. So what I'm hearing is, is let's say there's a small business owner out there right now who's doing call it 100 150 ,000 a year in annual profits.

5:08And maybe they're doing it by selling custom candles or t-shirts or coffee cups or whatever. And they're now able to take$66 ,000 in the solo 401k and invest it and then write off that 66 ,000 against their personal income? That's crazy. The exact numbers are they're allowed to contribute 22 ,500 as an employee and about 25 % of their net profit as an employer. So in this example, yeah, it's probably closer to 40, 50 ,000, not the full 66, but yes. Okay, so question that I have on this. Let's say I have that candle shop, I'm crushing it on Etsy or TikTok or whatever, and I'm implementing this strategy.

5:50What happens if I need to bring on help? If they're a 1099 employee or a 1099 contractor, can I still use this strategy as long as they're not on the actual company payroll and they're independent contractors? Yep, that's a very good point. You're not allowed to have a full-time W-2 employee with this plan, excluding your spouse. If you have your spouse, you can actually both double up the contributions and get to 130 ,000, so very powerful, but you cannot have full-time employees. So in this case, let's say someone wanted to bring on a contractor. Cool. Let's say you wanted to bring on a W2 employee.

6:24We've built a platform with one click. You just roll the dollars into an IRA, shut down the plan, and you're good, right? You've still done that. So for a lot of people, even if you're able to do this two years, three years, especially if you do the mega backdoor, you can get hundreds of thousand dollars into your plan. So when you hire someone, you can immediately move that into an IRA, and you've still really leveraged the strategy for a few good years. Oh my gosh. This really illustrates on a high level. It's not what you make, it's what you keep. This is something that we preach a lot on Kerr.

6:53So this is amazing. And I hope everyone listening has this on rinse and repeat and taking a lot of notes because this is some high level stuff that can benefit everyone along your wealth building journey. All right, that was fantastic. So let's move on to number two, credit card points. Now, this is something I've actually never heard of. On your website, it says small business owners and side hustlers that have business credit cards can spend on those credit cards, actual business expenses, earn the reward points, but now use those points for personal benefits. So let's talk about that for a minute.

7:28I heard there's a little gray area in there, but then let's also expand on some of the other great credit card point hacks that you have. I love this strategy because as a business owner, you tend to have certain expenses, especially like let's say you're in the construction industry and you have to buy materials or if you're an online marketer and have to buy ads. And we have a lot of business expenses. And as long as you are responsible and don't get into debt, credit cards are just awesome. They're basically such powerful benefits. And I've used this to travel for free for the last few years of my life.

7:58So the way this works is put your business expenses on a card, set it to pay every month. Right now, credit card points are in a little bit of an IRS gray area where they've indicated at some point they want to tax it. Right now, they have no idea how to tax it. So as a result, you know, there's this great untaxed benefit that you can use. And as a business owner, you can use this for yourself and your family. What I use it for a lot and for anyone who loves to travel, I think travel is such a great way to spend these points. The one very important thing most people get wrong is what they do is they'll set up a credit card, earn a lot of points.

8:33Then they'll go to the credit card rewards portal, book a flight, redeem it. That is very, very inefficient. Do not do that. What you want to do instead is create an account with the travel provider. So in my case, I'll give you a specific example. I wanted to fly to Dubai to see my family. by transferring my American Express points to Emirates, I was able to get a flight, a first class flight for about 120 ,000 points. While if I redeemed it from the Amex portal, it would be almost half a million points. So that simple strategy, I think will save people so much. That additional step, while it adds a little bit of complexity, will basically allow you to fly for free in business or first class, almost anywhere in the world.

9:14Okay, hold on here. So I have 140 ,000 chase points because I did do like the, got like the business ink card. It was like a$3 ,000, you know, intro spend and you get 80 ,000 points, whatever. I've used a couple points here on some other stuff, but I still have a good chunk here. So what should I do now? So I've got these chase points. Do I transfer? How do I do this? Let's imagine you and your girlfriend are flying to Paris. Let's make this real, right? So let's imagine my goal is to get you and your girlfriend to Paris in business class for 140 ,000 points. What you may be tempted to do is go on the chase portal and try and look for flights to Paris and be like, oh, you know, maybe I'll get one flight, but it's kind of expensive.

9:52What I would do is there's a website called Flying Blue. It's the loyalty program for Air France, KLM, a few others. I would create a Flying Blue account. I would then search for flights to Paris, business class, two tickets, across a bunch of different dates. And what I will then notice is I can probably get a ticket round trip for 60 ,000 points. And by transferring your chase points to Flying Blue, which you can do one for one, you and your girlfriend can probably get to Paris for 140 ,000 points round trip. It's that little additional step of creating that account and transferring those points where all the difference comes in.

10:27That is incredible. And what's awesome too is these points were generated to your point earlier, Robert, from actual business expenses of things that I had to spend money on to operate my business, right? So it's like I had to spend this money anyway and now the money translates into free flights for my girlfriend and I to Paris. That's so cool. The other tip is look at what types of expenses you have. And some cards pay a bonus on that type of expense. As a very specific example, I can't remember the name of the card, but we spend a lot on Amazon Web Services hosting and they have a higher point multiple on that.

10:58So that's worth looking at if you have one type of expense that's much more than the other. So I have a question. Are there any hacks when you have a lot of like Delta SkyMiles points or are those just basically they are what they are and there's not much of a hack you can do with those? Delta is amongst the trashiest points to have. Like not, I mean, look, I'm a Delta diamond. I love the airline, but the points are just not super valuable because when you're redeeming a Delta flight, the points are proportionally as expensive as the cash ticket. But a lot of international carriers like Emirates, for instance, the same flight is a fixed number of points no matter when it is.

11:32So it's very, very good value if you're able to get those flights during a busy time. So it also, yeah, depends on which carrier, but Delta, unfortunately, is not the best for points. Love it. Yes, it sounds like I need to do a better job of optimizing my credit card points, transferring them to that carrier or to that platform that I want to use them, make that extra step so I can get the actual benefits to the max value. This may sound like work, but honestly, it takes such little time. And it's kind of fun in a weird way, right? Like it's like, oh, how do I get to Tokyo for free? And it probably will take 10 or 15 minutes of research.

12:07And then you feel like you figured it out. And yeah, it's awesome. As much as I had a successful exit, I still can't get myself to spend$8 ,000 on a plane ticket. I can't do it. So points come to the benefit. That's why you're our kind of people, because you see so many of the fake entrepreneurs out there that, you know, show you their pictures and their content in front of the rented jet and the Lambo or whatever. And, you know, I always tell people and I don't think it's a lack mindset at all. Money can be fleeting. And when you get a large sum of money, so many people don't realize, and I was victim to it early on with silly bands, that when you've never seen tens of millions of dollars in your bank account, it's very easy to lose track of what got you there.

12:51And I think one of the most important things is remembering that you don't need to spend$8 ,000 for that three-hour flight when you could just fly first class for$1 ,100. And who cares? You can work on the flight. It might take you an extra hour or 90 minutes, but you're not losing any value in time. And so I agree with you 100%. We could go on for hours about all the stories. I've seen people yelled at me for not flying private, but now they're broken back working a job. So it's hilarious. us. Okay, sounds like I need to figure out how to go to Paris with my girlfriend for my Chase credit card points.

13:26So good call on that one. Now, this part is actually something I'm also doing personally. Point number three here, which is splitting your income with an S-corp. Ankur, I want you to get into the nitty gritty though, right? Let's say someone out there is a side hustler or a solopreneur. They're making some decent cash, right? They're selling those candles, the coffee mugs, the hoodies. How can they leverage an S-corp to save on payroll taxes? So the way to think about it is when you first start a business, you typically may not incorporate, you may just have it pass through on your tax return.

13:55If you first set up a business, most people set up what is called an LLC, which is the same for taxes, but it provides a little bit of legal protection. When your business starts doing better, you can think of incorporating or filing taxes in a different way. And each of them have their sort of own tax benefit. So I'll talk about S-Corp specifically. And if we time I can talk about C-Corps and why it may make sense. But what an S-Corp does is once you're making about$100 ,000 in net profit, some people will say a little bit less, but I think$100 ,000 is a good number. What you can do is either set up an S-Corp or elect to file taxes as an S-Corp.

14:29And what that does is it bifurcates your income into the income you would make as an employee and the income you would make as an owner. So on$100 ,000, you may say, look, as an employee, my job is worth the$50 ,000 salary because that's what I would hire someone else to do. And the rest is me as an owner. And then what happens is you only end up paying self-employment taxes, which are Social Security and Medicare taxes on the amount as an employee. So in this very specific example, if$50 ,000 is business profits and does not have self-employment taxes, you would save almost$5 ,000, a little bit less.

15:01But right there, just by making this one election to being filed as an S-corp. So very, very powerful. Super powerful, right? So from my perspective here, I've done this. I pay myself$70 ,000 or$80 ,000 a year with a salary. And with that, that money that I'm paying myself is taxed both from the employer and the employee side. So let's say to your point, Ankur, there is an Etsy shop owner who's profiting after everything said and done, that$100 ,000,$200 ,000,$300 ,000. I'm definitely closer to$300 ,000 or$400 ,000 myself. And so after paying myself that$70 ,000,$80 ,000, I'm getting double taxed both myself and the company, but that other call it$250 ,000 difference in profits, I'm electing to take that as an owner distribution, which is only taxed once and not that additional payroll tax, right?

15:46So I'm saving call it$40 ,000 a year by doing that. But this I think is a major tax hack that a lot of people might think is too complicated to actually do. But with Gusto, with all the resources online, it makes it super simple. That's why I like the$100 ,000 number from, for instance, because you could probably save a little at 70K, 80K, but at 100 ,000, you're saving thousands of dollars to make the little bit of additional admin work worth it. But look, if you're willing to do the work and you're willing to internalize a little bit of paid, look into it at 70, 80K. At 100, it's a no brainer and it's kind of stupid not to at that point.

16:20I want to touch on this for a moment. And this is amazing for me because this is, I have goosebumps literally right now having this conversation because I fight tooth and nail every day with all of these influencers that don't know what they're talking about. If you watch on Instagram and TikTok right now, there are a million people out there saying, go start that S-Corp, do this, do that. And they don't realize that the additional admin costs outweigh the advantages of having an S-Corp until you hit that 70K, 100K profits. And Ankur, you're the first person that has ever echoed that because I've had so many conversations with my lawyers and my tax attorneys saying, am I wrong here or what?

17:02And they're like, no, you're absolutely right. And I want to add one more layer to that for everyone listening. Always remember this. You can start an LLC and migrate it to being an S-Corp in an S-Election, but you can't start an S-Corp and migrate it to an LLC. So make sure when you're starting that company, it's okay to start out as an LLC and migrate to the S-Corp election or S-Corp filing because of the fact that it's less expensive to operate the LLC in the beginning until you're making that 70 to 100K of profits. Huge, huge point here that I wanna make sure everyone is writing down and listening because this is something that has been on my mind for years and I talk about it all the time.

17:44Yep, absolutely. While we're at caveats, another caveat that I haven't heard a single influencer say is if you live in New York City, chances are an S-corp election may make less sense because New York City hits you with a almost 9 % unincorporated business tax. I've had friends of mine, you know, see the S-Corp marketing fall into this. A lot of times if you're in New York City, audit your numbers very well and find someone who knows what they're doing because an S-Corp may not make sense since you get an additional tax. Joys of living here. Interesting. I didn't know that. Yeah, New York is very tough and there's a lot going on in the crypto space as well.

18:17That could be a whole different episode of what they're doing to the crypto space there, which I think is crazy. While we're on the topic of incorporation, something I also want to quickly point out is if you are graduating to the next level of business, a C-Corp could make sense for what I think is the largest tax benefit by size, which is something called QSBS, where if you sell your C-Corp after five years, you can pay zero taxes on$10 million. That's like the granddaddy of all the sort of tax savings, but less applicable with the side hustle, more applicable if you're building a larger business with the idea of selling it.

18:48Very cool. I mean, I think that's what you did, right? Correct. Correct. QSBS was something that I learned about four or five years after starting my company, but I couldn't believe it. I was like, this is a gift from the government. We don't get those gifts very often. All right, so we know the Solo 401k is a great way for side hustlers and small business owners to write off their own retirement investing. The mega backdoor Roth Solo 401k is a way for folks to invest up to$66 ,000 toward that retirement, over 10 times as much as the Roth, right? So that's what I've done myself. Robert is all about it too.

19:23We talked about the credit card points. We talked about the portals, ways not to use the credit card points, ways that I need to now use so I can go to Paris. And finally, we talked about splitting income with the S-Corp, something I'm also doing. Robert's doing it. Really excited about this one. This is something that folks who are profiting $100 ,000 or so per year should definitely consider in their wealth building journey. All right, everyone. Time to jump into everyone's favorite segment of the podcast, question and answer. We're going to have Ankur hang out with us this time as well to answer some of these.

19:54So it's going to be a good one. So our first question comes from Holly M. Holly says, Robert talks about creating and inventing products all the time. And this is something I'm ready to start doing myself. I've got some ideas for a new product, but I have no idea how to go from idea to final product. So do you have any perspective here, Robert? And then also, Robert, I'm going to let you answer this one with your background and your expertise. But then Ankur, I want you to talk about the R &D tax credit for Holly as well. Yes, Holly, great question. And I get asked this thousands of times a year.

20:22And I would say we could spend hours on this question, but I'm going to try and condense this down and make it make sense. Number one, protection. Get your idea figured out, get it flushed out, do your research, make some pencil drawings. I don't care if they're on a napkin, you've heard that phrase before. And make sure that before you start sharing the product with the public or manufacturers or designers or CAD people, anyone else, that you have a design and manufacturer's agreement, two different documents, with the people that you're going to work with to flush this out and get you through the drawing phase.

20:55So then once you get to that point and you can start speaking to factories, finding a manufacturer, you want to make sure that you have that second contract, that manufacturer's agreement flushed out. Because what you don't want to do is just randomly go on to Alibaba, start sharing your idea with a bunch of factories, because if it's good enough, they're going to run with it without you. And you're going to see your product somewhere on the market in six months. You have no idea how it got there. So those are the first two things. Number three, before you go spend a bunch of money on patents and this and utility patents and design patents, make sure you really flush out what is the market's reception to this product.

21:33Is it big enough? Does it solve a big enough problem? Is it trendy enough? Because what I would recommend sometimes when you're developing a new product, do the design patent first because it's quick and inexpensive. Then get the product to market. You have some protection and then go after the utility patent if you deem necessary. Because remember this, and I just went through this right before COVID, I developed a product that was a silicone bracelet that held a half ounce of sanitizer in the bracelet. I launched it with a design patent, and within four months, we were absolutely killing it.

22:07Schools, churches, governments were buying it. And at one point, four or five months in, there were 20-some knockoffs already on the market, driving the price way down and making it really unprofitable to do this product. So you want to get to market, prove it out, because that patent might take you two years for the utility patent to get. And by the time I got the patent on the bracelet, nobody cared about sanitizer anymore. And COVID was something no one was talking about. So I think those are the key points, protection, research, and understanding the dynamic of the market to know how big this could actually go and then spend the money as you go along.

22:46Because what you don't want to do is spend two years building, prepping, and getting it ready and being bulletproof, and then find out nobody really wants the product. So I would say those are my key takeaways. Amazing. You can see an expert in action right there. The one thing I'll add real quick while we're on taxes is look into the R &D tax credit. It's another thing the government gives you when you're working on innovation and innovative products. You can get a tax credit sometimes for six to eight percent of payroll for people working in innovation. But what's especially powerful is in the first couple of years, your business may be losing money, but even then it will save you because you can apply this not just to income taxes, but also payroll taxes.

23:23So all my tech startups always take this credit. I love it. And I don't have any perspective because I never built a product before, which is why I've got these two awesome people to give me a little bit of backup. So our next question comes from Peter B. Peter says, I'm a high income earner, consistently making over$300 ,000 per year, and I'm trying to find different ways to offset my W-2 taxable income. I've heard of short-term rentals, bonus depreciation, oil and gas investments, as well as conservation easements. Do you all have any perspective on this? So I'll share my favorite type of investment for W-2 earners.