How The Rich Use S-CORPS To Explode Their Wealth

Introduction

• The speaker introduces the concept of using an S Corporation to significantly increase wealth, aiming for $100,000 or more.

• Credentials: Registered CPA, attorney, best-selling author, and business owner in the tax and legal industry.

• Emphasis on helping clients leverage the S Corporation strategy for maximum profit.

• Addressing common misunderstandings and misuse of the S Corporation.

Understanding S Corporations

• Definition: An S Corporation is a specific way of conducting business, distinct from LLCs and corporations.

• An S Corporation can be an LLC that elects to be taxed as an S Corp or a corporation itself.

• Visual representation provided:

  • Trifecta Model: Operations (left), Assets (right), Trust/Tax Return (bottom).

  • Different forms of business ownership: sole proprietorship, LLC, or S Corporation, with S Corporation being a preferred option for tax efficiency.

Comparison of Business Structures

• Sole Proprietorship vs. LLC vs. S Corporation:

  • Sole Proprietorship: Files a Schedule C tax return.

  • LLC: Also files a Schedule C tax return; doesn’t save on taxes compared to sole proprietorship.

  • S Corporation: Files a separate corporate tax return; potential to avoid self-employment tax.

• Example of a landscaper:

  • Generates $100,000 in revenue, spends $25,000 in expenses, nets $75,000.

  • Sole proprietorship and LLC pay 15.3% self-employment tax; S Corporation potentially avoids most of these taxes.

S Corporation Strategies

Strategy Number One: Reducing Self-Employment Tax

• No self-employment tax: One of the biggest advantages of the S Corporation.

• Need to take a 'reasonable salary' (example: $25,000 salary, $50,000 in distributions).

• Concerns about reasonable salary and IRS audits addressed:

  • Speaker has extensive experience and asserts low audit risk when salary is reasonable.

  • Importance of splitting income into salary and distributions to reduce taxable income.

Strategy Number Two: Building Wealth through 401(k)

• Use savings from reduced taxes to fund a solo 401(k):

  • Tax deferral benefits and retirement savings accumulation.

  • Contribution limit can be up to $30,000 in a year.

  • Company match can further enhance savings.

• Investment Diversification: Funds can be allocated across various assets (crypto, real estate, stocks, etc.).

• Stress on the ease of setting up a solo 401(k) tailored to the business owner's needs.

Strategy Number Three: Forming a Board of Directors

• Encourage family involvement in business as a board of directors for operational support.

• Tax benefits from business-related expenses when board members travel or have meetings.

  • Examples: travel deductions, tech gadgets for board members.

• Creating legitimate tax write-offs while involving family in business operations.

• Importance of maintaining company records and minutes for asset protection.

Summary and Final Thoughts

• Using an S Corporation substantially lowers the risk of IRS audits compared to LLCs.

• Speaker encourages viewers to take proactive steps in their business structure for exponential growth.

• Final suggestion: Consult a tax attorney for setting up or maintaining an S Corporation to maximize wealth and tax efficiency.

• Call to action: Watch additional videos for advanced tax and legal strategies.

Conclusion

• The video emphasizes the strategic advantages of adopting an S Corporation—tax savings, wealth building through retirement accounts, and leveraging family involvement for operational success.