MBA2401 Guest Teacher- Ankur Nagpal - How Business Owners Can Save Money on Taxes

0:09Heyo! Welcome to the$100 MBA show, powerful business insights you can count on with our practical business lessons. I'm your host, your coach, your teacher, Omar Zinhome. And today is a guest teacher lesson. On our guest teacher lessons, we bring on an expert to teach their area of expertise. Today, we have Ankur Nagpal, and he'll be teaching you how business owners can save money on taxes. Like Ankur says, being a business owner, having a business is one of the best ways you could save money on taxes. Now, Ankur doesn't just talk the talk. He walks the walk. What he's going to teach you today are strategies he used himself as a business owner.

0:48You might have heard of a very popular course platform called Teachable. Well, Encore is the founder of Teachable. After selling his company, he started a business dedicated to helping business owners like you save money on taxes. It's called Carry over at carrymoney.com. More about that later. But he's here today to teach you a dynamite lesson on some mind-blowing strategies you can use to save some money on your taxes as a business owner. So let's get into it. Let's get down to business. Now, this goes without saying, but I have to say it, of course, you should always consult with your financial advisor, with your accountant.

1:24Everything shared on today's episode is not financial advice. Always speak to an expert when it comes to any financial matters, whether it's your personal wealth or your business. Share what you learned today with your accountant, your financial advisor, your CFO, whoever. Now, another thing is that Anker's going to be sharing some great tips, some great advice that particularly pertain to business owners in the US. Now, if you live outside the US, this episode can still be very useful because the practices that he shares, the rules, the options, the benefits might apply to you in your country.

1:58There are many of these types of rules in different forms in other countries as well. They might be different. They might be nuanced in some way, but learn about them so you can talk to your account, talk to your financial advisor, about them and say, hey, is there something like that here? Because there might be a good chance that there is. So without further ado, I want to pass it on to Ankur to teach his guest teacher lesson, but I'll be back to wrap up today's episode and give my takeaways. But for now, take it away, Ankur. What's up, everyone? My name is Ankur Nakpal, and I am the founder of Keri.

2:29Previously, I founded a company called Teachable, which helped business owners make money online. And with Keri, we're helping the same business owners save money on taxes and build wealth. And today I'm going to teach you three of my favorite strategies for business owners to save money on taxes this year. The first strategy is meant for business owners that are earning ideally$100 ,000 a year or more in net income. And that is consider incorporating your business as an S corporation, or if you are set up as an LLC, filing a form to be taxed as an S corporation. The reason this is important is if you don't do this and you run your business either as a sole proprietor, which means it flows through in your personal tax return, or you run it as an LLC, all business earnings flow down to you and get taxed on a personal level.

3:20With that comes approximately a 15 % self-employment tax that pays for Social Security and Medicare, which as you can imagine, starts getting very, very expensive as your earnings go up. However, if you choose to be taxed as an S corporation, what that does is it bifurcates your income into two categories. You earn income as a business owner and you earn income as an employee. And you then only have to pay self-employment taxes on what you earn as an employee. So as an example, let's say you were earning$100 ,000. As an LLC, you would pay$15 ,000 in taxes. But if instead you elected to file as an S corporation, which you can do until March 15th, and then you split the$100 ,000 into$50 ,000 as an employee,$50 ,000 as a business owner, you end up only having to pay self-employment taxes of$7 ,500 on what you'd do as an employee, which would net out to a tax savings of over$5 ,000 a year simply with this one election.

4:23This is a very, very powerful strategy. And I think if you make$100 ,000 a year or more, you definitely want to do this. Some people do it at a lower income amount, potentially$70 ,000 or$80 ,000 a year. At that point, you have to decide whether it's worth the additional hassle of creating an S-corporation, doing the tax filing and all of that. So at$100 ,000, you definitely want to do it. An S-corporation can be a phenomenal way to save thousands of dollars on your taxes. All right, let's talk about my second big tax benefit. And this one is something I was able to leverage personally at my last company, Teachable, when we sold it.

5:03And this is most applicable for anyone that may be a startup founder or someone that is building a company with the idea of selling it in the future. If you think you're going to sell your business in the future, I strongly encourage everyone to incorporate as a C-corporation or called a C-corp for short because this gives you the biggest tax break in America today, which is something called QSBS or Qualified Small Business Stock. Here's how QSBS works. With QSBS, if you own shares in a C-corporation, so your own company that you set up for five years, and the company is a qualifying small business when you buy the shares, which means it has less than 50 million in assets.

5:45After you sell those shares, after holding for five years, you pay zero taxes on$10 million. Let me repeat that. You pay zero taxes on$10 million when you sell at the federal level. And in more than 40 states, including New York, where I live, you pay no state taxes as well, which means if you sell your C corporation after five years, you can have a tax bill of$0 on 10 million bucks. Isn't that crazy? If you get to the point where you end up selling your C corporation before hitting five years, you have the opportunity to do something that's called a QSBS rollover, which is very similar to a 1031 exchange in commercial real estate, where you take the entire pre-tax dollar amount and you invest it in another qualifying C corporation right away.

6:40So in practice, here's what it looks like. Let's say I start company A that I sell in three years. I can take the entire amount I get, not pay any taxes, invest it in company B, which can be my own company, and then only wait two years to then invoke this$10 million benefit. Want to hear something even crazier? You can actually multiply the$10 million benefit to be$20,$30, or$40 million by giving shares to your family members. So with this startup, I have decided to give shares to my mom, my brother, my dad. And the cool thing is each of them have their own$10 million QSPS limit. So for us as a household, we now have a much higher limit of tax-free income if I were to sell my company.

7:26If you want to get super crazy, you can go down an estate planning rabbit hole and end up setting up very specialized trusts that each get their own$10 million exemption. But you have to be a little bit careful there since in order to get that exemption, the trusts have to be irrevocable and for the benefit of someone other than yourself. But still, it's truly staggering just how powerful this QSPS limit is since it is the biggest tax break in America today. And it's enough of a tax benefit that if you are building a company with the idea of selling it in the future, it may be worth considering setting up a C corporation.

8:06Awesome. So we've talked about an S corp. We've talked about a C corp. The third tax hack I'm going to share with you, and this is the reason we actually started this company, Carrie, is if you work for yourself, either as a business owner with no employees or someone with a side hustle or a freelancer, you get access to the most powerful retirement account in America. This account is called a solo 401k and it's super effective because it combines the power of a corporate 401k, but it's designed specifically for yourself. So you can set this plan up to be the most flexible plan and invest it in any asset you'd like.

8:47Here's five reasons why this is the most powerful retirement account in America. And if you work for yourself, you should set one up this year. One, a solo 401k has the highest annual contribution limit of any of the major retirement plans in America. A solo 401k allows you to invest$66 ,000 this year,$69 ,000 next year. And the best part is this whole amount is a tax deduction. It reduces your taxable income, goes into a retirement account, and starts growing for your benefit. The second advantage is all the growth inside the solo 401k is completely tax-free. So you can buy and sell shares, buy and sell different assets.

9:27You don't have to pay any taxes at all until you take the money out in retirement, which means your accounts grow much, much faster and they start compounding. The third big benefit is you can invest your solo 401k in any asset you'd like. You may be familiar with a 401k from your corporate job, which is typically very limited in the sort of funds and instruments that you can end up buying with it. With a solo 401k, you can invest it in all the conventional ways, which is stocks and ETFs and bonds and mutual funds. But if you'd like, you can also have fun with it and decide to invest it in cryptocurrency, real estate, startups, venture funds, private equity funds.

10:09It's truly the most flexible account out there. The fourth benefit is you are allowed to make Roth contributions, which allow you to put in post-tax dollars, but in the process, never pay another dollar in taxes, even when you take money out during retirement. This is such a powerful strategy. You may have heard how Peter Thiel was able to grow a Roth account to$3 or$4 billion. It's a great way of building a retirement nest egg. And since this is your own custom 401k plan, you can even set it up to do an advanced strategy called the mega backdoor Roth that allows you to put in all$66 ,000 as a Roth contribution.

10:48So super, super powerful. The final reason why I think everyone should consider setting up a solo 401k is if you end up needing the funds yourself later for any reason, you can at any point at all, for literally any reason, borrow up to$50 ,000 from your own solo 401k. You can borrow up to$50 ,000 or 50 % of your account value, whichever is more. You can borrow it, spend it on anything you'd like. The only requirement is you have to pay the account back with whatever the interest rate is today. But the benefit is the interest goes right back to you. It's money from one hand into the other hand and really makes this the most flexible account out there.

11:32The challenge with the solo 401k is not everyone is eligible. Only business owners that have no employees, excluding their spouse, or anyone with a side hustle or a freelance business is eligible. But if you are, this truly is the greatest retirement account in America and something everyone should consider setting up. so if you're curious about these strategies and want a list of more strategies we've partnered to create a page at carrymoney.com slash 100mba carrymoney.com slash 100mba and you can download a list of all these strategies as well as learn how you could set up your solo 401k account this year if that's something you're interested in but i encourage you to read more on this topic And if you are a business owner, do whatever you can this year to lower your tax rate.

12:24Because as I've told you, there's no bigger tax advantage in America than owning your own business. Thank you. And back to you, Omar. What a mind blowing episode. There were so many great tips in this episode. So many unbelievable really tips where at least one of them you're like, I didn't know that existed. Now, don't forget that there's a free gift for you over at carrymoney.com slash 100mba. Again, that's carrymoney.com slash 100mba. You can go ahead and grab that right now. And of course, you can go to carrymoney.com to learn more about Encore's business, his software to help other business owners save money on taxes.

13:05Before we wrap up today's episode, let me give you a little piece of advice. Take what you learned today, make some notes, and schedule an appointment to talk to your accountant, to your financial expert, your CPA. And I would make it a reoccurring meeting once a year where you just chat with your accountant and say, hey, are there some things I'm unaware of? Maybe your situation changed. Maybe your P &L has changed. Maybe your business is doing something else. Maybe there's something new that has been introduced in your country and your region. I do this all the time. Yes, I'm gonna get billed for those hours with the accountant, but it's well worth it because you may be saving thousands, if not hundreds of thousands, or even millions of dollars if you're not taking advantage of certain things that are available to you.

13:49So speak to your accountant, make an appointment. And in my experience, accounts love geeking out about this stuff. They love sharing what they know. They love actually helping their clients because it's a break from the mundane tasks that you normally have to do. Thanks so much for listening to the$100 MBA show. And thanks, Encore, for that great guest teacher lesson. You can find Encore Nagpal over at Twitter or X. Go ahead and follow him. I'm a friend of his. I follow him as well. He's amazing value, and he's got a great deal of experience in business. If you love today's episode, if you love this podcast, make sure you smash that follow or subscribe button on your favorite podcast app.

14:25Okay, you don't have to smash it. Just press it lightly. But by doing that, you tell the algorithm, hey, this show's all right, and you get our next episode automatically, and you get access to over 2 ,400 episodes in our archives. Lessons galore for you to devour. Before I go, I want to leave you with this. The more I'm in business, the more I've been an entrepreneur, I've been an entrepreneur for over two decades now, the more I realize that knowledge is power. Knowledge is really, really important. Being in the know, there's so many things out there that you may not be aware of. By just knowing it can really change a lot of things in your life, in your business, can help you tremendously.

15:01What I found is that things are never what they seem to be. There's always other things to learn. There's always things to dig into. There's other information that's out there. So be a learner, be a researcher. Always be on the lookout to improve your breadth of knowledge because it might just make all the difference one day when you're making decisions, when you're making things happen in your business, in your life. Thanks so much for listening. And I'll check you in Wednesday's episode, Q &A Wednesday. I'll see you then. Take care.

15:38Thank you.