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How The Rich Use S-CORPS To Explode Their Wealth

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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.