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Ask HN: How do I manage the profit of a successful website?
214 points by Asking__HN on Jan 3, 2022 | hide | past | favorite | 134 comments
Some time ago, I started a subscription-based website that has slowly gained momentum and revenue. Currently, my monthly recurring revenue from this site is about $45k USD per month. I’m taking ~$14k/mo salary (which is far more than enough for my needs) and I’m paying one other dev part time about ~$6k/mo. My other expenses to keep it up and running are only ~$2k/mo. That leaves quite a bit leftover and I don’t know what I’m supposed to do with it. I have no desire to expand the operation for many reasons. I’m perfectly happy working on it full time myself and don’t want to change anything. My question is what am I supposed to do with that profit? Claim it all myself as income? Let it accumulate in the business account? The company is formed as an LLC and I am based in the US, for reference.



If you have it as an LLC, any profits will pass through to you through your schedule C, and you will be taxed at regular income tax rates. Your accountant will help. But tax optimization can REALLY matter, and as a small business you have massive opportunities to very legally and ethically optimize your business and tax.

Top of mind, what you should really consider is: a) setting up a 401K under the business to shelter some of the income tax free (you can also contribute a significant portion of profit tax free.) Vanguard and Fidelity have no cost single member LLC 401ks that are super simple to set up.

b) thinking of your strategy to invest in this business, or grow another one. Because any expenses are deductible, this is like having ~30% off any business investments courtesy of the federal government.

c) relative to a) above, is if you have a spouse, employ him / her in the business to the extent that you maximize their 401k contribution. (I did this for my spouse and even at $18K a year compounding the 401k has $300K bucks in it!) Again, a small business accountant will be super familiar with how this works.


This is very solid advice.

I would only add that you should consider maxing out your Roth IRA contribution every year (6k USD per year), particularly if you are young. You use post tax dollars to fund your Roth IRA, but all of the funds in your Roth IRA, including all gains, are tax free when you retire.


the GP's 14k a month salary would put them above Roth IRA income limits. The only option is a backdoor Roth IRA contribution.


Thanks to absurd tax laws, they won’t qualify for roth IRA. I’m in the same boat, have to look at backdoor, but does draw some heat and attention of the IRS doing back doors.


AFAIK, backdoors are a non-issue with the IRS so long as the paperwork is done correctly.

Do, do, do read up on "pro-rata" considerations because the regular->Roth conversion of post-tax contributions is definitely not tax-free if you have any other pre-tax dollars sitting about in any IRA.


I don't think the spirit of the question was "how do I avoid paying taxes", but more along the lines of "what the hell do I do with all this money I don't need?".

I would suggest giving it to charity, OP. My mother always said even poor folks should be giving at least 15% of their income to charity, but if you have more than you need, no reason not to increase that number.


It was obvious OP didn't know simple facts about taxes and income... based on his/her post. Getting that right is more important for the longterm and I think the parent was on point.


Sadly, many charities are borderline fraudulent. Always ask what their administration fee is. I remember getting a call on Memorial Day asking for donations to veterans. I asked what the administration fee was and he said 90%. I said, "No, I mean what do you take to process these payments and make the calls?" He repeated, "90%." I was floored.

Anyway, to answer the OP's question, you need to save at least some of it. Just because you are making money now doesn't mean you will make it in the future. Plan for a life-changing event where you are unable to make money, or even worse, you are reliant on others to take care of you. Best to have something stored away, preferably an appreciating liquid asset so you can get to it fairly quickly.


You need look no further than the amount of $ given to San Francisco charities to help the homeless and actual results on the ground.


An easy solution to "what charities should I give to": https://www.givewell.org/


Administration fee is less important than overall impact, which I assume is what people who worry about overhead actually care about. There are plenty of evaluators that skip worrying about overhead and get to them meat of the issue, how much does this charity help per dollar.


If any company takes 90% for administration, it's a scam, no if's and's or but's. That's actually a net negative impact because it gives people pause when donating to charities.


What's the difference? What portion of your dollar is neither "help" nor "overhead"?


The impact of the dollar changes depending on what you spend it on. If you want to help veterans there are tons of ways to do that ranging from mental health outreach, to political action, to just giving them money. You can figure out which organization has the most impact per dollar and donate there. Handing out money to veterans might have extremely low overhead since it can be done by a single person mailing out checks, but that doesn't mean it's the most effective way to help.


Although 90% is very high, it does take some money to figure out how to allocate the rest of the money. Spending 100k on a study on how best to allocate the remaining 400k but spending it twice as well results in a 20% administration fee but more good done.


Because money is fungible, you can pay more tax or you can give more to charity. The answer is very pertinent because of this


It's good to donate a percent to a charity (I think charities where you personally know people working for them are best). It's also very important to make sure you have money set aside for retirement or emergencies (even if you have a surplus). You may have children, your parents may need care, your small business may be disrupted, and it's good to have something to fall-back on or use if you need a runway or to invest some money into a new business.


It's unethetical to pay taxes if you're American. Have you seen what they do with that money?


This is not good advice. If you set things up correctly you should set it up as an s-corp to maximize your tax savings.

If you have an s-corp, you won’t have to pay self employment tax, which is 15% on all of your profit and all of your salary if you just stay an LLC without an s-corp election.

With an s-corp you are advised to pay yourself a reasonable salary as a w2. That salary is the only thing you will need to pay that self employment tax on. That salary should be as low as you can justify. Here is info from the IRS about how to go about calculating that.. https://www.irs.gov/pub/irs-news/fs-08-25.pdf

I would imagine you could easily justify $50k-$75k as your salary, but you’d have to put the time in to calculate it.

If you were to do this based on $54k a month, you are saving about $90k a year on your taxes. The less you pay yourself a w2 the more you save.

If you set up like this, which is the way you will save the most on your taxes, then the amount you can contribute to your retirement account, ie solo 401k for you in this situation is approximately 50% of your w2 income because how much you can contribute is tied to your salary. For a $75,000 salary that max you can contribute is $38,250. Sure feel free to put that into your Solo 401k.

But that should be an after thought to saving the 15% self employment tax.

By putting money into a 401k it is not tax free only tax deferred, this means you will pay taxes on it eventually. If you think you may make more in retirement than you are now it makes this deal way less sweet. I know I’m planing on making more then.

Also, hiring a spouse is again a terrible idea here, because you are going to then pay 15% self employment tax between the two of you. 7.5% each.

Sure if you are an LLC and didn’t take your s-corp election then this makes sense. But if you did, hiring your spouse will be an extra 15% tax on his/her salary, since all of your profits won’t have that 15% tax on them.

And for what reason.. so you can put it into a tax deferred account you will need to pay taxes on eventually.

The very first thing you do when you start to make real profit is to take an s-corp election. There isn’t even an argument to this.

Telling the poster to do anything beyond taking a s-corp election first is doing him a huge disservice and costing him around $90k a year.


I don't think this is correct. The 15% or so self employment tax is only for the first 147k income (2022). The rest is more like 3%.


I’m also a solo LLC business owner. Open up a SEP (assuming you plan on having w2 employees) else open a individual 401k (can’t have employees). Allows you to contribute significantly more to a personal retirement account. Quick back of the napkin math with a SEP you should be able to stash away around $31,000 into retirement annually assuming you pay yourself $168,000.

Second, buy yourself work equipment (write offs). Buy that top of the line new MacBoom Pro and ultrawide monitor. These are business expenses and write offs, but still assets.

Finally, open up a health savings account and stash as much as the limit allows (it’s not a lot), but better than nothing. Also tax free in.


Super helpful. I didn’t know about individual 401k’s.

Thank you!


You in particular should also benefit greatly from a SEP IRA. Expensive to run but lets you sock away much much more.


Actually Solo 401k lets you put away just as much if not more, and has a Roth option. But both are worth considering for sure.


What's expensive about running a SEP IRA? Are you referring to the fact you have to contribute to an employee's IRA as well as your own?


I had to jump through hoops and pay a specialized firm to administer. Maybe it no longer applies?


Both are basically plug and play now with places like fidelity or vanguard. Zero admin fee for mine.


Seconded on no cost with at least Fidelity. They start having reporting requirements at $250K of assets. They are also something of a pain to close if you have multiple participants.


I can’t say what happened, but SEP was always the simpler, cheaper option, nearly DIY compared to a proper 401k.


Super helpful reply, thank you.


My favorite thing to do is tax shelter!

With $45k/mo income self employed, you can contribute to a self directed Roth 401k as both the employee and the employer. This boosts your maximum 2022 annual contribution from $20,500 to $60,500. You can only contribute with 20% of the revenue, so you need around $300,000 to pump the max of $60,500 into one of these. It is slightly lower if you do this through an S-Corp. So everyone is correct that you need a CPA, now that you can afford to have some real fun. There are some things that are almost impossible to do alone, or actually impossible.

Unlike corporate 401ks, you can invest the money almost any way you want - from a passive vanguard fund to the sketchiest and most exciting crypto assets - all the money grows tax free in there and is tax free upon withdrawal when you reach certain age thresholds.

Your work is just beginning!

- CPA versed in personal, business and retirement accounts

- 401k Compliance company

- Payroll company to process W-2’s

- 401k Bank account

- 401k Traditional brokerage

- 401k Crypto brokerage

- Separate wallets to never intermingle assets

I think this is achievable for ~$1200 first year with ~$900 annual fees. Split between the Compliance company, payroll company and cpa.

Eventually you’ll have enough in those to invest in private equity funds

If you’re worried about making money for the sake of it, you can always set a few foundations or charities as the beneficiary of the 401k plan, in event that you die. Or just pay a boatload in taxes for not making the transactions that Congress prescribed.

Once you get that on autopilot, then you can work on ensuring current year tax deductions. Are you getting the research tax credit due to your US-based (?) software engineer? For example. Maybe relevant for you, maybe not. CPA.


This is certainly the most interesting answer.


Maybe I am not understanding but even with a solo 401k you can’t contribute it all into the roth part. Only like $5k. The rest goes into standard retirement account which is tax deferred.


Roth 401k contributions are subject to the same traditional 401k contribution limits. I think you are not understanding. Where does this conflicting information come from?

Do note that there is a super confusing "after tax 401k" as well as a "roth 401k" which is also after tax but different. Search engines have trouble with this, and it also confuses gurus. But neither of these reduce a 401k contribution down to $5k, and the roth 401k is all taxed now and tax free later exactly like a roth ira with 1,000% higher contribution limits.

Sources for my world:

https://www.nixonpeabody.com/en/ideas/blog/trusts-and-estate...

My CPA

https://www.nerdwallet.com/article/investing/roth-401k

https://www.irs.gov/retirement-plans/roth-comparison-chart (only details the employee contribution here)


Search Mega Backdoor Roth [1]

1 - https://www.mysolo401k.net/solo-401k/mega-back-door-roth-usi...


Yes, but for anyone considering this, keep in mind that any funds converted to Roth are subject to taxation now, less the Roth contribution limit (varying by your income). So you're picking between tax deferral now versus tax-free distributions later. There's no way to get both.


But also note that its not a penalty, just normal taxation added to your AGI or MAGI, so you can reduce or nullify that current year tax by having lots of expenses (borrowing against assets and using them for deductible expenses, donating appreciated assets to charity etc)

This can be done strategically, such as one year where you need traditional pretax 401k / IRA tax deductions you just contribute to those. And in a future year you convert those to Roth and report the income that you reduce with expenses

Talk with a CPA about it to make it make sense. People act like a random person on the internet mentioning something about legal/taxes is the most heretical thing possible, but the point is to point you in the right direction and bring up the same topic with licensed professionals. Lawyers and CPAs aren't going to procedurally generate all possibilities to get you the best result, you have to inspire them to look in particular directions and verify along with implement if it checks out.


The HN audience, friendly as it is, is probably not your best advisor on these matters.

Your accountant or tax adviser should have advised you about this ages ago. Either improve communication with your current accountant or fire him and get a new one able to properly answer this question.


You have to know at least some things yourself when talking to an accountant or tax adviser. When I was looking for a CPA, I met with several with good reputations before deciding on one. What I found was that all but one was deficient in some of their knowledge when it came to my specific situation, despite all of them having years of experience in small business accounting. One gave me outright illegal advice as a "tax optimization" strategy. So I would say it's essential for the business owner to have some knowledge before going to meet a financial professional (or any other kind of professional, really).


A million times this. Some randoms on a website are the last people you want to take financial advice from, especially when that financial advice could potentially lead to a very hefty tax bill and/or criminal charges.


Baloney. You need to know what to ask your accountant for. That's why it is useful asking on HN.


A competent account, with the information OP gave and a little more, can give OP the best advice for their situation in their city/state/country.


One may not have the parents/friends/family to teach them how to know who a competent accountant is (or worse, a nefarious one). It is impractical to spend a lot of time interviewing many professionals, so forums can provide a quick way to cut through some noise.

Obviously, different forums are helpful for different things. But I would do both, utilize the power of the internet community and the services of a professional.


Finding a competent accountant might be easier said than done.


Dumb advice. Tons of people here have been in the exact same position and the advice given is super standard.


Except for the fact that there are more than just federal tax laws and OP needs to talk to a professional.


Are you a solo owner? You need to take an s-corp election and you do not need to pay yourself that type of salary. At most you should pay yourself $54,000 a year.

The reason is money that goes through an s-corp you don’t pay self employment taxes on. Salary you do. That is 15%.

You wouldn’t need to pay yourself more than $54,000 without the government getting upset.

Right now, based on $54,000 a month you are losing about $90,000 a year not being structured like this.

The rest of the money, you can just transfer to your personal account and do whatever you want with. It is all your money as a solo owner, so if you want it just send it to yourself.

I’ve been through this exact situation before and I’m currently a tax strategist and help people with this type of stuff everyday.

When we had all that extra money, I moved to Asepn Colorado and had a bunch of fun skiing and living it up.

You can do whatever you want with the money, but please get your s-corp election set and stop paying yourself $14k a month.

If you want help reach out. I think my email is still in my profile.


Between an S-Corp structure and having an i401k... definitely awesome for taxes. Nothing really competes for contractors.

I'd take the advice here of what dictates a "reasonable salary" with grain of salt however. $54k is not some magic cut off. Income only a factor in calculating it.

Here is official document. Purposely vague of course so it can be the IRS s discretion or a legal battle: https://www.irs.gov/pub/irs-news/fs-08-25.pdf

Just get an accountant. Pay yourself as low a salary as they recommend and document how you arrived there.


I have a (maybe dumb) question about salary: wouldn't "officially" paying myself $54k / year result in my not being able to rent or buy real estate where there are income requirements?


Could be. My experience (in multiple cases) was that they accepted bank deposit slips and Quickbooks invoice records, though.

It also has implications for unemployment insurance and SS calculations.

Your social security payout will be lower if you spent 20 years earning $50,000 than if you spent 20 years earning $100,000. Unemployment checks (which you can receive even if you're a self-owned s-corp) will be smaller too.

The long-term benefit assumes you weren't an idiot with the extra income. Even if it's post-tax, tucking the extra $$ away in your favorite safe investment vehicle will probably leave you better off over 20 years than whatever extra Social Security you would've made when you hit 65.


Yes that can definitely happen so you'll need to be careful about that. For some areas or houses, you can show your bank statements rather than income, but not all places accept those.


There are businesses dedicated to assisting S-corp owners in determining reasonable compensation. While $54,000 is not a ridiculously low number, there is no "magic number" that makes the IRS happy. Remember, you are working for the corporation. The requirement is for a reasonable salary, based on the work performed and local market conditions. What would it cost to hire someone else to do the same work?


Are you saying that if you have an S-Corp, and not an LLC, any money the company makes past $54,000 annually is tax free?


So still an LLC, but it is taxed like an S-Corp when this election is made. This allows an owner working in the business to be an employee and take a reasonable salary. W2 income is subject to FICA taxes, but all the other profits in the business pass through to the owner as usual for an LLC, but aren't subject self employment tax or FICA. You still pay regular income tax though. This is all at a federal level.


It's not tax free, as you're still paying the income tax on it, but if you (as the owner) get it as distribution instead of salary, then you're not paying payroll taxes on it, which is what was suggested in the parent comment. You'll have to make sure you're paid "reasonable compensation" (https://www.irs.gov/pub/irs-news/fs-08-25.pdf).


S Corp profit is pass through, so you pay taxes on it. But it is not employment income, so no self-employment tax on top of regular income tax.

https://www.investopedia.com/terms/s/subchapters.asp


Picking a random comment to reply to since all of these are good answers - thanks everyone!


Sort of but you don’t even need to have an S-Corp, you can apply as an LLC filing as an S-Corp. BUT You have to do it at the beginning of the year.


Not OP, with a s Corp it is not completely tax free. Money past 54k would be handled differently and free of payroll taxes.


Other replies said it, but to put it more clearly:

Is "any money the company makes past $54,000 annually is tax free?" Not even close!

You have to pay income tax (federal, possibly state) on _all_ the money you make. That's very important. Like, "at best a fine, at worst jail time" important.

I was a solo S-Corp for three years and had to learn all this stuff. Here's a breakdown:

Payroll taxes (federal) are taken only out of your salary. If you work for a business as a W2 employee--hourly or exempt--you pay half your payroll taxes, and the business pays half your payroll taxes. The 15% total in payroll taxes (SS, Medicare, FICA) is 7.5% paid by you, and 7.5% paid by the business on top of the salary they are paying you.

So, for example, if your salary is $50,000 per year, you will have $3,750 deducted from your paycheck for payroll taxes and your employer is responsible for an additional $3,750 on top of that. Disregarding income tax, taking a $50,000 salary means getting paid $46,250. But to pay you that $46,250, it costs the business $53,750.

All well and good if you and the business are different people. It wasn't your money to begin with. But if you are the employer and the employee, which is the case for solo S-Corp structures like this, then the whole 15% is coming out of your pocket.

Let's say your business earns $120,000 a year and you decide to pay yourself a $100,000 salary. That costs $107,500 (gross) and you keep $92,500 (net). If you decided to pay yourself a $54,000 salary instead, that costs $58,050 and you keep $49,950. Your profit is ($120,000 - the cost of your salary) and your total earnings are net salary + profit.

In the first case, (120,000 - 107,500) + 92,500 = $105,000. Congrats, you made $105,000! That's a lot of money. Now you pay income taxes on it.

In the second case, (120,000 - 58,050) + 49,950 = $111,900. Congrats, you made $111,900!

Thus, you took home $6,900 more this year because you paid yourself a lower salary, all due to payroll taxes.

---

What's the catch? Why not pay yourself $1 a year and increase your stacks?

The IRS has a rule for S-Corporation employees that says they must be paid a "reasonable salary" (https://www.irs.gov/pub/irs-news/fs-08-25.pdf). Ultimately they get to decide if you are taking as a payroll-taxable salary is "reasonable".

The way I had it explained to me is that I would need to be able to testify before a judge that whatever salary I picked is "reasonable" (not necessarily market rate) for a person with my skills in my location. $1 a year isn't even minimum wage, so that's out. Minimum wage is out because I can't argue with a straight face that the local minimum wage is a "reasonable salary" for a software developer. So it's up to each individual S-Corp owner to pick a number that they could argue is a "reasonable salary". In this case, $54,000 is probably safe because the IRS has bigger fish to fry.

As in all matters of legal and financial decision making: talk to your lawyer, talk to your accountant, don't talk to cops.


Late, but thank you very much for the detailed response.


A special thanks to all who replied! The spirit of the question was definitely less “how do I avoid taxes” and more “what other things should I be considering”, _but_ I’ve learned that I definitely need to find a good accountant and tax person because what I’m doing now in that regard is horribly inefficient.

I love the wide range of suggestions I received as this is exactly what I was looking for and the HN community didn’t disappoint.

Aside from tax/accounting/business stuff, here are some great takeaways/ideas I got from you all:

- First and foremost, and I’m extremely embarrassed to admit that it hadn’t even occurred to me, I want to start sponsoring folks working on open source projects. I definitely make considerable use of such projects and will definitely start supporting them monetarily.

- Related to the point above, I like the idea of sponsoring artists—-musicians, local museums, etc. I don’t have Muskmoney to throw at the community to make all artists rich, but I can definitely help fund a project or two for a year or something.

- I love the idea of sponsoring some local sports teams.

- “Pay for Sublime Text” made me chuckle.

- I’ve tried offering more money to my other developer, but they already have a well-paying job and this person was more of a mentor to me through the whole process and they are just happy to see the project succeeding.

- Donate to charity. Love the idea, but as others pointed out it’s hard to figure out where to put that money. I’m thankful for the givewell and charitynavigator links and will check them out.

- Assume it won’t last forever. This I know, and it’s part of the reason I wanted to ask HN. It’s operating profitable enough to get me set for life, so once I’m there, I now have a lot of good resources to turn to to see what else I should focus attention and money on.

Thanks again HN!


On your last point, here is a good advice: https://www.youtube.com/watch?v=rJjKP8vYjpQ&t=105s


Don't forget to donate to developers of software you use for your website dev and ops!


Indeed, don't forget the developers of free and open source software that is used for your website, and also share some useful generic code for free.


consider that these donations can probably be deductible.


You should engage the services of an accountant who will advise you the most tax efficient way of managing your money. A good accountant will save you multiple times what he/she charges you in fees.

I'm in the UK, so can't really advise in your case, but here you can invest £40k in a pension fund per year as a business expense.


This is great advice. There are provisions to allow you to set aside a little over $50K per person under some circumstances (and as the business owner, you have a lot of influence over whether those circumstances apply). If you managed to employ a spouse or family member, you could put away substantial sums for the future in case the fortunes of the site turn downward.

Kudos on the decision of “this is great the way it is”; just make sure you’re stacking firewood for the winter. (Contact the advisor soon, so you might be able to make a 2021 retirement contribution before the filing deadline.)

Specifically ask your advisor is there’s a way you can make these contributions under Roth treatment and what their advise is there. Personally, I’m shooting to have at least 30% of my retirement investments at retirement be Roth so I can control some of my tax exposure then (and I don’t expect taxes to go down in the next 10 years), but if you’re paying for pro advice to your specific situation, pay attention to it not an internet comment based on a few hundred words of unrelated context.


I ran a business with similar or better numbers for 20 years with the same attitude. I have a number of disabled family members to care for permanently so my use of profits was very different. Also I was raised in skakey circumstances so I’m insecure.

Bearing those things in mind it was enormously helpful for me to pay off my mortgage ASAP.

The next step is certainly overkill for most. I also bought a farm nearby with cash in case of... more global problems, which have concerned me since my childhood in the turbulent 70s.

The farm is surpassingly tranquil and beautiful. It has made my life much better and has coincidentally extended my working life enough to launch a third career in my 7th decade.

I made all of these choices out of insecurity but we had consciously chosen an economically diverse enough place to live (Seattle area) that they also turned out to be sound investments.


Congratulations. It's a problem many people would love to have.

Instead of (or in addition to) supporting charity, I will suggest that you set some aside for supporting "starving artist"/open source developer types via Patreon and similar. Find a few whose work you think actually has some value and kick a few bucks their way. For every rolling-in-dough business like yours, there are many more people trying to add value who aren't good at monetization and it's a serious problem.

Don't assume this will last forever. Take all the advice from knowledgeable, experienced people to invest, fund your retirement, etc.


From a tactical level, I'd repeat the suggestions to find a good local accountant to discuss your issues with. I found mine through a referral from a friend who was also running a small business and he has been invaluable for years (through startups, LLCs and W2 jobs).

Since you are US based and have minimal employees, you may want to look at either a SEP-IRA (which lets you save ~$50k a year pre-tax) or a individual pension (less experience with that, but have read about it).

From a strategic point of view, I'd sit back and consider your goals. What do you want to do with that cash? Save for retirement, sure. It sounds like you've ruled out expanding the business, but there are other things you can do:

   * start a new business
   * start a foundation
   * save for the future (non-retirement)
   * optimize the business even more
   * buy alternative investments (real estate, for example)
   * buy a hobby farm
   * work less hours
Any advice I give you on those paths won't be worthwhile since I don't know your goals. But that discussion is worth having, even if it is with yourself.


How about donating to charity? If you don't need the money, there are people in the world who are struggling to get clean water.

Spend some time to verify that your money goes to a good cause and not to scammers.

You could start by donating to a local sports team to buy equipment to those who can't afford if, for example. Then go see their games to see what you've accomplished.


Donating excess profit (from self-run business and/or employment) to local non-profits/small organizations is the single most satisfying thing I've ever done. Not only does it feel great to donate the funds to them, but to be able to afterwards tell the change you're able to help them achieve is invaluable.


Do you have any advice on finding/selecting the right charities? Each year I give away a portion of my salary but always struggle to find good charities to give to. Perhaps I am overthinking it, but any tips on this would be appreciated.


https://www.givewell.org/ Is a good site for finding charities that create the most good per dollar. That’s what I care most about.


Find some charities that interest you then hit up a site like https://www.charitynavigator.org/ and see if they are in the database, if they are see how they are rated, make sure they aren't spending 95% of what they raise on salaries and advertising expenses, etc.


> Do you have any advice on finding/selecting the right charities

I don't donate to international/national organizations but local ones, or even local businesses I like but who struggle with something. My tip for finding those is to participate in the local business/events landscape in your province/city/neighborhood, and talk to people.


Yep. Always fun to sponsor a kids sports team and get your logo on the jerseys. :)


If you want, you can also arrange things as "sponsorships" of various things for the nonprofits you support, which may allow them to be considered a business expense, saving you that money on taxes (last I checked, LLCs don't get tax deductions for charitable donations).

If your company's name is on the jersey of the Little League team, for example, it's an "advertising" expense, and the team gets jerseys.


This. But I'd say don't just donate the whole sum. Talk to whatever accountant you find about creating a foundation and building an endowment. At $20k+ per month in seed you'll quickly ramp up to millions of dollars in the endowment and can build a foundaton that runs in perpetuity to enrich the lives of a lot of people less fortunate than you.


1. Do not assume this goes on forever. Use that $ to plan for the next thing. 2. Get an accountant and minimize tax.


This is the right advice. "What do I do with all this extra money I don't need" is not the way to think about it. Figure out a good way to collect all that money and invest it in safe-ish mechanisms and guarantee a good future for yourself and your family.

Plus, if you do the above, you still have the option to be charitable with your assets, but in an even more sustainable way than if you were to be charitable with the "extra" now because of the beauty of compounding.


Apart from saving for your retirement and offspring, I'd suggest finding a good and effective charity in your area, or starting one yourself, for a cause that you can get behind.

Think of how to make your business, house, transportation, etc., more energy efficient and less polluting.

For the rest, get an accountant and/or tax adviser. Or get two or three and compare their initial advice; it looks like you can afford that now.


Invest it in a 3 fund portfolio.

https://www.bogleheads.org/wiki/Three-fund_portfolio


I am not an accountant, I am not an investment advisor, I am not in the USA. Here are my (random) thoughts.

Extract half for yourself. Invest half of that in stocks and share, put the other half into a pension fund.

The half that's in the business, keep 1/3 as liquid assets, invest the remainder.

Buy advice from a decent investment advisor, pay a proper accountant, put the money to work.

Others will probably respond here with radically different suggestions and tell you why all the above is dangerously wrong, so above all, be aware that you are taking free advice from random people on the internet. It's probably worth what you're paying for it.


You have made it, assuming you can keep up the operation at this level for a few more years.

The next logical step would be assuring it stays that way. You are basically done creating and earning, you are defending and securing it now.

Get help from an accoutant to legally get as much money out of the company as cheap as possible, so you can diversify it. If you want to keep your money, you do not want to have all your eggs in one basket. Read up on personal finance and once you understand how these things work and believe in them, invest in world wide portfolio of stocks through ETFs.

Even if you do not want to invest further into your company, I would consider also switching modes there: How can you defend it? What are scenarios how you could lose it all? What happens if several failures happen at once? Say you are sick for two weeks, your employee wants to quit, but your server just got hacked. I would work on automation of critical routine tasks, failovers, security, backups and so on to make this thing as solid as possible.

If I were you, I would see myself as the most critical part: What if there is suddenly trouble with your family and you are unattentive for a few weeks or months? Can your business sustain that?

Only after I would have created a good level of confidence in all of the points above I would think more about what to actually do with the money. That's a good problem to have, which also requires creativity again, once you are sure it will actually stay there with reasonable probability.


It's pretty funny that almost all answers are about how to get even more money, when the poster doesn't know what to do with the money he already has.


I would file as sole proprietor on schedule C. Write off all expenses, then you'll be taxed on excess profit at your ordinary income rate. Put most of the extra money into ETFs to save for retirement.

It sounds like a lot of money now, and if it never goes away, is completely autonomous someday, or you never want to retire, it is. But if this business were ever to fail or you want to retire it someday (if it requires a lot of active involvement), to replace 170k/year in income, you need a minimum of $5.6M in retirement savings using the 3% rule. That will take quite a long time to save, even with your income.

Not to mention, if you ever have lifestyle inflation and want the whole 45k/month some day without relying on this website, you'll need a whopping $18M which will likely take you most of your adult life to acquire unless you grow the business substantially. Check out /r/fatfire that has a lot of advice and resources for wealthy people. And if you happen to be looking for some alternatives to passive ETF investing, check out my site grizzlybulls.com to learn about algorithmic trading. Congrats on your success!


I feel two part in your question:

1-What is a good use with excess money?

2-How to manage the money?

For (2) I would hire someone good with tax optimisation and also try to understand it myself and I would invest in the stock market.

For 1, you can look into effective altruism and see if it resonate with you. It might be possible to make 1 and 2 work together ex: micro lending, investment in renewable company, etc

You can see the capital as a way to accelerate the change you want to see in the world.


10 You need to talk to a good CPA, immediately. 20 You need to talk to a good CPA with experience in startups, immediately. 30 You need to talk to a good CPA and tax attny w/experience in small biz, immediately.

Here's the rough picture from my experience as part or full owner of several corps in my career, "S", "C", and/or LLCs (I'm not a lawyer or tax attny, so this is just experience to give a rough idea, not advice):

My experience has been that the profits from LLCs and "S"-Corporations go to your personal bottom line. If you are the sole owner, there's essentially no difference for tax purposes between you being a sole proprietor. So, it doesn't matter where you keep the money (biz acct or yours) or for purposes of the amount of tax you'll owe that year.

To retain earnings in the corp, you'll likely need a "C" corp, and then pay taxes at the corp level. This is often sub-optimal, as you'll pay taxes on a corporate level, and then to yourself as dividends when you later take money out of the corp.

You definitely need to GoTo Line 10,20 and 30. Things will definitely differ depending on what stare you are in, and with your particular situation. There may be many optimizations that are available to you. In your situation, it would be good to talk to several and interview them.

Also, if you continue to do that well, start talking to good trust & estate attnys, especially if you have a family. When I say good, I mean good - seek out the top in the industry. The top ones are fundamentally better than the typical local T&E shops (these will give you a far better plan than nothing, but...).

Congratulations on your good skill and fortune, and I hope you do well!


A non-financial suggestion:

> I have no desire to expand the operation for many reasons. I’m perfectly happy working on it full time myself and don’t want to change anything.

This is a GREAT attitude. Don’t let others sway you from it. When seeking advice about situations like this, it becomes very common for folks to recommend what is typically taught of them in a growth-oriented society like we have. You’ll get lots of people telling you why you should grow, expand, reinvest, etc.

This has meant the death of some really terrific products. Growth for growth’s sake is a tempting dragon (I’ve fallen for it!) but stick to your guns here. You’ve got something great, so keep it great just the way you like it.

Do take note that complacency can be risky though - another commenter pointed out that situations like this don’t necessarily last by default, so stay aware of your competition and don’t fall behind. But congrats on building something profitable and great, and I wish you the best in keeping it that way!


Ignore any advice you read here or elsewhere.

Find a dedicated small business accountant and explain your situation and your desires.


Don't ignore this though.


Pay your other developer more. They helped you get here.


My first advice ($10K/mo solo founder) is to not be complacent. Most likely competition will eat up your revenue if you don't invest in maintaining your customers - whatever that means to you (could be product upkeep, marketing, new features)


Re-invest it in your business. Hire someone to help with SEO and SEM. Hire someone to write content like a blog. Find someone to manage your social media, moderate a discord and build community around your product. Spend (more) money on ads

You aren't going to find a better investment. A well performing mutual fund might get you 10% a year. Something riskier could get you up to 15%. I'm willing to bet you can make much more than that just by re-investing in the asset you already have. You can also avoid paying taxes on that money in the short term.

If you don't want to do any of that, just leave it in your business account until you do.


I agree with hooande with two small caveats:

1. If it's something you think is inherently short term (say it's about NFTs and you don't think they'll last) take a portion of the excess income and invest it elsewhere, even if its from the same corporate entity you'll be able to shift to multiple revenue streams.

2. Sometimes with these smaller opportunities it's more fun to just hyper-focus on making the most delightful experience possible, instead of squeezing out another 40% by optimizing SEO and user funnels. I know a couple people that ultimately built much larger companies because they started in something that was a labor of love before the market really even existed (e.g., a podcast app) so when the sea of people finally came they had the most polished offering. You said you didn't really want to focus on growing the company, so this is a happy middle way you could think about.


You have ~$20k left over at the end of the month. My advice would be to take a small portion of that money and talk to a tax professional rather than getting advice from HN. It really all depends on your corporate and personal setup.


Get a financial advisor. I have a friend that was in a similar situation as you. His advisor got him buying rural city tax free municipal bonds, paying in the range of 7%. Such an investment pays 7% interest annually, with a lump sum payment one month a year. His advisor got him with one such bond paying the lump sum for each month of the year. Once he was setup with over $140K per year, tax free, with a termination something like 27 years in the future... he started training his favorite nephew how to be his competition. Last I spoke with him, they'd both graduated mentoring two of the nephew's daughters.


Congrats on achieving what most of us dream of :-) Being in HN you're bound to receive many different comments ranging from hatred, envy, irony, tax tricks, personal strategies, good hints, helpful tactics and many more. Find a good accountant or tax adviser, usually through recommendations, and discuss your own plan based on your specific needs (age/singe/family/kids/retirement/pivot..).


You get an accountant and don't ask on HN. You need to decide how much you will reinvest into the site and keep for a rainy day fund. HN can recommend what they've done, but please take it as a grain of salt, advice you got talking to some buddies at the bar, and get a good financial advisor and accountant probably one that specializes in tech would be good if available.


Talk to your accountant and/or financial advisor. I do not know much about Germany’s tax regime but in many countries it is beneficial - if you leave money inside a corporation - to have an investment account and essentially use it a pension scheme. LLC may not be eligible for that and you may need to convert to a whatever is the German thing for C-corp.


Read this book called Profit First by mike michalowicz. This saved me so much time from agonizing on what to do with my money every month.

Since you are based in US, the advice there will fit you better. I'm based in Singapore so advice like taking yearly dividend from the company is not feasible for me.


At your income levels, consider a Personal Defined Benefit Pension Plan.

https://www.schwab.com/small-business-retirement-plans/perso...


Contact a tax advisor/accountant, ask them if you should elect s corp treatment, also ask what a reasonable salary draw is to avoid IRS tax evasion scrutiny. Defer to their advice over HN’s; they’re the tax/finance professional on the hook for given guidance.


> on the hook for given guidance.

If you get fined by the IRS for taking their advice, can you actually sue them for damages for being wrong?

Or if a lawyer gives bad legal advice, can you sue them?

I always thought the responsibility stayed with the person, even if they paid for professional advice.


Rudy from Alpha Investments talks about wealthy people just investing the vast majority of the profits and using good brokers to borrow against that at really low interest rates when they need to pay for something.


Lots of great tax advice here. But 45k MRR is far from FU money. Think creatively about whether there are ways you could grow the business. Going from 45k->90k should be a lot easier than 0k->45k.


- Create your own charity or gives money directly to people/cause you care about

- Sponsor GitHub open source projects you used to build your business

- Invest in a diversified portfolio and live using the “4% rule”


Pay for Sublime Text :-D


Save 50% of all the revenue for taxes


you seem to be very good at your work. I would use the extra funds to create something more teslaic


How did you market?


Congratulations!


Are you hiring?


Congrats friend


What does the site do out of curiosity.


The site makes money. /s

I highly doubt, nor expect, the OP to divulge the information you're asking for. Would you welcome 100's of new entry copy cat competitors?


In addition the OP is using a throwaway account. And nothing in their bio. So i assume they want privacy.

However if anyone is curious about other people making this much per month and what they are doing check out the indiehackers website.


So, first, congratulations on the huge success! That's a significant amount of income.

Second, make sure you have your taxes straight. The S-corp thing is a reasonable idea, but only touch that if you have an accountant doing it for you. The IRS is less forgiving with bad S-corp filings than they are with normal schedule C filings. Also, if you've only been paying taxes on what you took home rather than the total profit of the business, get an accountant and a lawyer ASAP and fix the tax situation. (I doubt that's what happened, but one could infer from your original post that it's possible you mistakenly thought that leaving money in the business account means that it's not taxed that year. Even if you didn't think that, there are probably people who do think that and might be reading this thread.)

As far as your actual question, here are some notes: a) Remember that income from a business is fickle. Operate under the assumption that this income could disappear at a moment's notice. b) If you have a spouse, their opinion is as important as yours, and statistically, they relate to money differently than you. (One stereotype that I've seen played out many times in real life is that men tend to think of money as a scoreboard, and women as safety and security. If a husband and wife ignore those differences, it can lead to intense marital strife.) c) Your stage in life makes a difference. At an early stage in your career, it might be acceptable to swing for the fences, strike out, and start from 0. (That is, reinvest all the money in business growth, grow huge, and eventually implode, failing to gain any profit, but knowing that you at least tried to 100x the business.) In other stages of life, that's not an acceptable risk. d) Regardless of life goals, I think keeping huge amounts of money (more than 18 months of salary and expenses) as cash in your business account isn't wise. It's not doing anything there, and inflation is currently high and will likely stay that way, so it's probably better to have excess money in an asset that matches inflation. e) Don't over-fixate on taxes. Be sure to pay as little tax as you are obligated to pay doing what you want to do, but don't let your decisions be steered excessively be taxes. For example, a 401(k) is a fine way to reduce taxes if you aren't planning on using the money until traditional retirement age anyhow, but perhaps you want investments that can throw off current income, not for some time in the future when your bones hurt and all you want to do is sit around and drink martinis. You have enough income that you can take a mild tax penalty to actually do what you want.

So, as far as what I would do, I would probably buy real estate in a growing area with low to moderate real estate taxes and a good ratio of rent to house cost. (So, San Francisco and New York are out because rent is cheap compared to the value of the unit, and Illinois is out because property taxes are so high that vacancies will cause you to burn cash.) Some states that I've been looking at include the Carolinas, Georgia, Florida, Texas, Tennessee. You're throwing off enough cash, that in a few years you can buy enough housing stock with cash to replace your $14K/month salary with rental income (remember to include the cost of management, maintenance, taxes, and insurance when calculating potential rental income!). At that point, you've bought yourself full flexibility, and then you can swing for the fences as hard as you like, and if you strike out, you're already so far ahead that it'll be an annoyance rather than a catastrophe.

Anyhow, the above is what I would do (and am in the process of doing - my business isn't throwing off as much cash as yours is, but it is exceeding my income requirements). Alternatively, you can do the Silicon Valley approach - pour all your excess cash back into growing the business. Ask yourself: what would it take to 10x the business from here? Is it just that customers don't know about your business? Hire a marketing guy and get after it. Are people not converting from trial to paid accounts? Hire a sales person to hold the customers' hands. Is the market fairly well captured already? Think of adjacent markets to expand in (either similar markets in the US, or localize the product and sell abroad). Take the $23K/month that the business is throwing off each month, and spend it as hard and fast as you can. Or better yet, turn yourself into a Delaware C-Corp, write up a pitch deck, go out to investors, and raise $4 million at at $30 million valuation, and devise a plan to spend $200,000/month on growth. Triple, triple, triple, double, double, double! In 6 short years, your business will have $45,000333222=$9,720,000 in monthly revenue. Then go public! Or more likely, watch it crash and go to $0! Dust yourself off and do it again! (This part of the comment may sound snide, but it's not actually intended that way. The venture capital path is the path that was taken by most of the super-successful recent tech businesses. It works for many people and many businesses.)

Best of luck!


I'll add to the advice you have received regarding getting a good accountant by suggesting you might want to use a good accounting firm rather than a single accountant.

Depending on where you live, you might be able to get a sense of whether or not there's a dominant firm that is handling financial matters for local businesses. I switched from using a single guy someone recommended to a real accounting firm years ago. The guy was good, no question about it, however, the accounting firm has far more depth. They also have a deeper/wider network through their client base that has come in very handy at times.

Don't pay more taxes than you are legally obligated to. Don't pay less either. Many people confuse tax optimization strategies with greed or some other derogatory term. When you order a pizza or buy a laptop you optimize for obtaining the computer you want at the lowest possible cost. Taxes are no different from this, the laws (federal and state) establish a procedure through which you calculate how much you owe. These laws are so complex that most people and lots of businesses pay more than they should. That is wrong.

A good accounting firm, and, perhaps, a tax attorney, can guide you on how to apply federal and state tax codes to determine how much you owe. Pay what you owe, no more, no less.

While you run a web-based service, you can still take advantage of Section 179 deductions. Make sure to discuss this with your accountant and understand how to use this valuable tool.

As someone else mentioned, don't assume this will last forever. Do not give away piles of cash recklessly only to find yourself in trouble years from now. I am of the idea that what philanthropic billionaires do is the right approach. Accumulate wealth over time. Maximize this for as long as you can. Use the time to learn and understand where you might be able to have the most impact if you put a non-trivial amount of money on the table. Then, once secure in your convictions and with your financial future on a solid footing, became the person who supports the worthy causes you identified and studied while you put money aside.

You can't create a great building without a large and solid foundation. Build that foundation first. Don't be in a hurry to burn money just because you don't currently know enough to know what to do with it. And please, pretty please, with sugar on top, do not give a dime to politicians --of any political party-- they are all a waste of time and money. What to support is a personal decision that will likely benefit from reflection and learning over time. Imagine a day, several decades from now, when you might be able to support a worthy cause with millions of dollars. That would be something, wouldn't it?

If you have a need to help out today, here's one suggestion:

https://www.stjude.org/


There is a difference in using tax avoidance programs the way they were designed (eg socking away money in a 401k) and taking advantage of tax loopholes, morally at least. Yes, no one wants to pay extra for a laptop, but it's not moral to take advantage of a website error which accidentally did all the math in cents as opposed to dollars to buy 100 top end laptops for $30/each.


I don't understand your point of view.

If the tax code says that I can obtain a tax credit for investing in solar panels, I buy a shitload of solar panels and get a massive tax credit. That's legal and also deemed moral. It was codified into the tax code as something society wants me to do. If I take all of my profits at the end of the year and spend a pile of cash buying equipment under section 179 of the tax code, I might very well end-up paying zero taxes and my even get a refund. If I amortize equipment over several years based on the schedule mandated by the tax code and, as a result, obtain tax benefits, it will reduce or eliminate a large chunk of taxes due.

All of this, and more, much more, is in the tax code. Society, through our representatives, decided these are worthwhile investments that result in benefits for all. Enough so that they are incentivized through deductions or tax credits. This is moral, ethical and absolutely 100% legal.

You website error is a ridiculous attempt to equate deductions and credits that exist in the tax code with stealing. How dare you? If you think I should not be entitled to a tax deduction when I choose to spend $250K in equipment at the end of the year, then go talk to your representatives and have these provisions removed. Until then, stop vilifying perfectly legal and REQUIRED tax accounting regulations. I say "required" because your accountant has the legal responsibility to manage your tax filing in accordance with the law. I could sue my accounting firm if they systematically neglected to file taxes in accordance with the law.

I love it when people go on and on about businesses paying zero taxes. It reveals complete ignorance of how money, business and the tax system works. Some businesses wouldn't even be viable without the tax code codifying what society wants them to do. Solar and electric vehicles are perfect examples of this.


> ...If the tax code says that I can obtain a tax credit for investing in solar panels

That's not what I'm talking about. I may think that's a stupid policy, but that's a policy.

I'm talking about having your company own a subsidiary in Ireland that owns trademarks your company licenses from them for, conveniently, 100% of your profits, which then moves their profits to the Netherlands, which then lets them move to a Dutch Caribbean island which then takes advantage of Caribbean solidarity laws to move it to the Caymans where yet another company that did no work takes the money and pays the 0% taxes there.

I'm also talking about loopholes like allowing individuals to take loans secured by appreciated assets to avoid having to sell those assets until death, when the estate will instantly adjust to market value.

Both of those were clearly never intended when the policies were set up, or if those were the secret intentions not what was publicized to the voters.

> How dare you?

Pretty trivially. I never said they were illegal. I said they were morally wrong loopholes. And I stand by it.


> I'm talking about having your company own a subsidiary in Ireland that owns trademarks your company licenses from them for, conveniently, 100% of your profits, which then moves their profits to the Netherlands, which then lets them move to a Dutch Caribbean island which then takes advantage of Caribbean solidarity laws to move it to the Caymans where yet another company that did no work takes the money and pays the 0% taxes there.

Name ONE company that isn't a criminal organization that does this. Just one.

I can imagine a lot of things. Just because I do, it doesn't mean that thing is real.

> I'm also talking about loopholes like allowing individuals to take loans secured by appreciated assets to avoid having to sell those assets until death, when the estate will instantly adjust to market value.

You are kidding, right?

Every homeowner in the US has an appreciating asset. Their home. And massive numbers of them take out loans secured by that asset in the form of second mortgages or cash-out refinancing. And none of them pay for the value their asset gained. When they die, and their estate is handed to their heirs, the tax treatment is exactly the same for everyone.

The other part you left out of your comment is that the loans still have to be paid after death, of course. So, if you leverage 100% of the appreciated value the heir is left with nothing. This is, quite literally, the mechanism in place for every single home in the US.

This loss of tax revenue (if the term applies to billionaires, it has to apply to everyone) dwarfs, in real dollars, what any one group of wealthy people could derive as a benefit through the same mechanism.

If you don't like it, go talk to your representatives to have them change tax laws as they pertain to real estate. Let's see how far you get.

> I said they were morally wrong loopholes. And I stand by it.

Oh, please. These are not loopholes.

Dictionary definition:

"an ambiguity or omission in the text through which the intent of a statute, contract, or obligation may be evaded"

A loophole would be something like discovering that because you have N+1 dollars you get to deduct at a rate twice that of everyone else because nobody imagined that anyone could have N+1 dollars when they write the code.

There is no ambiguity or omission when it comes to the tax treatment of real estate used as colateral for loans. This is the law, very clearly and completely stated and, quite literally, as I said, applying equally to every single homeowner or real estate owner in the US, billionaires included.

If you want to be angry, I'll point you to a very real loophole that is costing US taxpayers more than anything you can imagine billionaires might be doing.

The Universal Postal Union agreement of 1874 setup a situation whereby China, and others, could ship packages of 2 kg or less from China to anywhere in the US for a lot less than it would cost someone in the US to ship within country. For example, a Chinese manufacturer can ship a t-shirt from anywhere in China to anywhere in the US for $1 to $2 or less. It would cost a US manufacturer $7 to $10 or more to ship that same t-shirt within the US. Think about that for a moment.

Imagine wanting to manufacture and sell t-shirts in the US. You are done before you even made your first t-shirt. The only way you can be in that business is to get them made in China and have them shipped from China to your customers. Entire industries have gone "poof" because of this alone. Which, of course, means the untold numbers of jobs they supported have gone "poof!" as well.

This is how Chinese vendors on eBay, Amazon and elsewhere are able to provide free shipping. Those of us who manufacture goods in the US cannot possibly compete with this without raising prices and eating into profits, both of which weaken us over time and damage our ability to compete. The more likely scenario is that US-based manufacturers shift shift towards industries that are harder to export (aerospace) or fire everyone in manufacturing and run a hybrid US-designed/Made in China operation.

This agreement, signed over 140 years ago, was intended to help poor and developing nations (imagine China 140+ years ago) access other markets. Fair and just cause, of course. And yet, they did not think of adding some sort of a clause that would trigger if, say, for example, China became the second largest economy of the world. And so, China has been shipping product for nothing to the US, Europe and elsewhere for decades, absolutely destroying local competitors just on that basis.

That is probably the best example of a real loophole (ambiguity or omission) I can offer. One that we must fix, yet the political will to do so does not seem to exist. Trump tried to exit the agreement. Politicians used it to, once again, label him all kinds of nasty things. They ended-up making some adjustments. Not enough, we are still in it. US and European manufacturers cannot compete in their own region against goods shipped from China. Brilliant.


>> I'm talking about having your company own a subsidiary in Ireland that owns trademarks your company licenses from them for, conveniently, 100% of your profits, which then moves their profits to the Netherlands, which then lets them move to a Dutch Caribbean island which then takes advantage of Caribbean solidarity laws to move it to the Caymans where yet another company that did no work takes the money and pays the 0% taxes there.

> Name ONE company that isn't a criminal organization that does this. Just one.

The Double Irish Dutch Sandwich? Apple, Google and Facebook all spring to mind, and I'd bet that MSFT, AMZN and others did as well. I may have missed a few details, but FB hired Google accountants to implement the same scheme for them.

> Every homeowner in the US has an appreciating asset. Their home. And massive numbers of them take out loans secured by that asset in the form of second mortgages or cash-out refinancing. And none of them pay for the value their asset gained.

Yes, they do. And I think they should have to realize the capital gains on their house when they use the higher asset value as collateral on a loan. Not that it would matter because, as a matter of tax policy, US homeowners pay no[1] capital gains taxes on their primary residence.

[1] The first $500,000 of capital gains on your primary residence isn't taxed, and therefore it is trivial to pay no taxes for the vast majority of Americans.

> When they die, and their estate is handed to their heirs, the tax treatment is exactly the same for everyone... The other part you left out of your comment is that the loans still have to be paid after death, of course. So, if you leverage 100% of the appreciated value the heir is left with nothin

Normally if you spend 100% of the appreciated asset, you find yourself in the hole because you owe taxes. If you borrow 80-85% of the appreciation (and 100% of the basis) you can sell the asset, settle with the IRS and your creditors and be left with nothing. If you die, your estate will sell the asset, pay no tax (because it instantly rebases on death), and your heirs get the 15-20% that would go to the IRS.

> If you don't like it, go talk to your representatives to have them change tax laws as they pertain to real estate. Let's see how far you get.

You're the one attempting to shift from discussing asset appreciation to real estate appreciation. I doubt Bezos or Musk is refinancing their mansion as opposed to using their billions of highly liquid stock as collateral.

> an ambiguity or omission in the text through which the intent of a statute, contract, or obligation may be evaded"

Yes. I'm talking about how rich people can access their capital gains without paying capital gains tax. The "borrow money against stocks and never repay it during your lifetime" has the omission of language preventing it and is allowing an obligation (paying taxes) to be evaded.

>they did not think of adding some sort of a clause that would trigger if, say, for example, China became the second largest economy of the world.

There is a clause, it was invoked, and mail rates will be going up over the next 5 years. But that's, by your definition, not a loophole. Nor is it strictly relevent to tax loopholes if it were. Because there can in fact be two wrong things with the world, and we have the ability to fix more than one at a time.

And, even if we couldn't, I'd say that subsidizing Chinese industry is bad, but the end results of US companies shipping profits overseas is far more dangerous to the US economy.


> There is a clause, it was invoked, and mail rates will be going up over the next 5 years.

There was no such clause. I read the original agreement years ago when I learned of it. Trump wanted to completely exit the agreement. They fought him. The compromise was the progressive increase in rates you mentioned. Better than nothing, of course. However, the damage has already been done.

The businesses they killed with stupid policies such as that agreement and more will never return to the US and Europe. The Chinese got the full benefits and we (I include Europe in this case) will never be able to reverse the damage. This one agreement is almost the foundation of my intense dislike of all politicians and my belief that they are essentially incompetent outside of anything not politics.

I get your points regarding everything else. The thing is, the tax code evolved due to the pushing and pulling of politics and is fully of unintended consequences. Call them loopholes if you must, but they, for the most part, reflect the ugliness of the sausage making that politics represents.

This is why I think a flat tax system without any deductions, subsidies, etc. might be the best idea in the long run. It's almost the only way to push the proverbial reset button and make decades of the mess that tax law has become go away.


Buy BTC


Invest the extra cash, let the money do the work for you.


Doing investments inside the company may or may not make sense. If the company ever has any legal troubles, those company investments could be in danger. Again, as has already been mentioned here: talk to a accountant and/or tax advisor.


What a massive waste taking out 14k in salary. Almost everything can arguably be a business expense. Plus, any investment, just use SVPs or other methods where you don't incur taxation: would make no sense to take them out as salary just to invest them to ur name rather than a company's name. One day you'll pay the capital gains (which can themselves me minimized) and just buy a villa for business events, a range rover to go to meetings, and so on, on a legal structure's name, that is. gl.


What you're advising sounds at least borderline fraudulent. Yes, they should absolutely be taking out any halfway reasonable business expenses (discuss with an accountant if it's not obvious). But I'm pretty sure buying a villa for the events that their 2 person company holds isn't in the reasonable expense category.


Dude people buy jets and Teslas as a business expense. super common. Dan bilzerian's ex beverly hills villa is owned by Wish as a business expense and the ceo parties there. cmon.

You can twist the villa however you want. It can be an investment through an SPV and you pay rent. To be clear, arguing (and using) something as a business expense or an investment is not fraudulent.

I don’t know who in their right mind would take out a million in salary and pay 50% of it and then buy a villa with $500k, rather than directly investing in a villa either for the appreciation itself or to use for business events, branding, whatever

And this is just one very simple way. there are countless permutations. You can go as complex as you want. You can mix and match around with credit and exotic laws and exotic countries and exotic legal structures all day long.

Sorry if reality upsets you: the world is setup by lawyers( and/politicians) for shareholders, and that's because they're the richest and capital=power.


> Dude people buy jets and Teslas as a business expense. super common. […] arguing (and using) something as a business expense or an investment is not fraudulent.

This is just bad advice for two reasons: (1) Teslas and jets are terrible investments for someone who’s less than filthy rich. (2) Tax fruad is when you claim business expenses and then use items for personal activity. It’s only not fraud if the things you buy are used exclusively for business reasons. If you start buying lavish things and use them for yourself, it is fraud and you are subject to a Tax audit that could land you fines or jail time. Happens all the time. You shouldn’t listen to stories of people gaming the system and getting away with it.




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