Taxes & Laundry

“What should I be doing to optimize my taxes? I feel like I’m paying way more than I should be.”

In my work, this is a very very common question.

From clients.

From friends.

From strangers at the gym.

So here we go. Let’s just do it. Best ways to optimize your earnings for taxes:

1. Move to Alaska to build your business - Alaska has the lowest state income tax rate at about 5%. Pocket all that extra cash, as well as the money you save from swapping out your hobbies of going to concerts and dinning out for fishing and snow shoeing.

2. Set up your business as an S-Corp - pay payroll taxes on the salary you pay yourself and avoid self employment taxes on the profits and distributions of the business.

3. Borrow against your assets - now that your business is worth hundreds of millions (you did move to Alaska and stop spending on fancy coffee, right?) you can stop taking a salary and borrow off the stock of the company. That loan isn’t income so guess what? No taxes! You just saved millions!

4. Move to Puerto Rico - ok, time to sell the business, but first you need to move to PR where there is no tax on capital gains. Ta-daaa! Another few million bucks!

5. Move from income to capital gains - Now that you have millions (billions?) of course, put most of that into long term investments. Capital gains on those are taxed at 15-20% rather than the 37%+ those suckers still working jobs are making.

6. Invest in real estate - Take some of the money and create a real estate company where you buy, sell, and rent real estate. Those properties get to be depreciated (don’t worry about what that means, it’s great, you’ll love it) while the actual value of the property INCREASES! AND! When you sell it and it’s worth a lot more, you just use a 1031 exchange to buy another property and avoid paying taxes on those gains!

7. Set up a foundation - Now for the big guns… so you set up a “foundation”, right.

…did I go too far at the end? When did I lose you? It was Puerto Rico wasn’t it…

Yeah, these are real strategies. Yes, they are some of the biggest tax “optimization” strategies there are. And no, most of them are not at all relevant or useful to you, dear reader.

Unfortunately, the real answer is not all that exciting. You want to know what they really are?

1. Get the right entity structure and tax election for your situation - could be an s-corp, could be a c-corp, you might even be best off with just a Sole Proprietorship.

2. Make sure you get all your deductions - best way to do this: keep good clean books and separate business and personal expenses with separate accounts. If you have questions, just categorize them to ask your accountant at the end of the month or year.

3. Use cash or accrual basis to your advantage - make sure you’re aware of which you are and when you make or collect payments.

4. Use 401k, SEP IRA, HSA or other tax beneficial vehicles for savings and health expenses.

Womp womp woooomp.

Not really that satisfying is it.

Why are we so obsessed with “optimizing” with hacks, tricks, or strategies? Why are these boring, basic tactics that you’ve probably heard many times, that will probably get you 80%, 90%, 99% of the way to “optimal” so ignored and overlooked?

I’d put forward there are a few reasons and everyone has their own cocktail including parts of at least a few of them plus many others not listed.

1. No one wants to be a sucker. We don’t want to be taken advantage of. We don’t like just handing money over.

2. We want to exert some control over our situation and because we don’t understand taxes (and to be fair even the experts struggle to track the massive maze that is the tax code) we feel at the whim of someone or something else.

3. We don’t believe that the real answer could be easy.

Now, most financial blogs and newsletters would focus on the literal answers here - what are the strategies. Maybe even sensationalize them a bit. So why am I focusing on a) the most boring parts, b) pointing out it’s boring, and c) the personal “feelings” behind this which are seemingly the least relevant and definitely hardest to address.

Here’s why.

Taxes aren’t holding your business back.

The constant pursuit of “OPTIMIZED” is.

Your business won’t succeed because you had a top tier tax strategy. In fact, often tax “savings” become prioritized to the detriment of your overall financial position. Yes, you could lower your tax liability by spending $___ on this thing you can call a business expense. But. You’d have more money at the end of the day if you didn’t, you know, spend the money in the first place.

And this isn’t limited to taxes.

Super complicated products aimed at squeezing every dollar out of every potential customer tier, seven different marketing channels all employing the latest “hacks” to boost conversion, or automations that “streamline” 20 seconds out of a thing you do 8 times a month.

We throw everything at the pursuit of optimal until it collapses in on itself like an everything bagel black hole that nothing escapes.

All of these are ways to win at the edges while we distract ourselves from winning at the core.

I used to hear all the time, “don’t let GREAT be the enemy of GOOD.”

Well don’t let OPTIMAL get in the way of better.

Ultimately your business will be successful because you execute on the basics:

• Create a great product and offer that people can’t say no to

• Establish a winning acquisition channel that wins you ideal customers

• Build efficient infrastructure to deliver that product at healthy margins

It’s boring. It’s not sexy. You can’t write a blog or IG post about how you doubled year over year by… doing the basics¹ .

That isn’t to say it’s easy. It’s not. It’s just not hard in the way we expect success to be hard.

It’s hard because you have to do it day after day consistently for years. Not because it requires a clever solution that viola! changes everything.

It’s incremental. It’s slow. It comes from outlasting your challenges, not out smarting them.

I want to leave you with two things (and set a personal record for most numbered lists in an email):

1. Don’t stress optimizing your taxes. If you’ve set up the right structure, are keeping clean books, and know how to manage cash vs accrual accounting, you’re doing great² . Maybe set up some sort of retirement account next. Focus on growing your business. Stress delivering a great product and experience. Deliberate about how deliver your biggest product just a little more efficiently. Then just pay the taxes. You’re not a sucker.

2. Success won’t feel like hitting a home run where one second you’re down by 1 and the next you’ve won the game. Most of the time it just feels like every day working to be just a little bit better. This right here, wherever you are, this is what success looks like. You just don’t have a big enough timeline yet.

Optimization is overrated. Tenacity and discipline is underrated.

Get to it this week and do the boring basics that make your business work.

Best,

Chase “taxes & laundry” Spenst

¹ He types as he’s 1000 words into doing exactly that

² If you DON’T think you’re managing cash vs accrual or keeping clean books or haven’t set up the right structure, then just call us and I’ll talk you through it in 30 minutes. Free.

Interested in working with us?

As you can tell, we love this stuff. And we’d love to work with you on it. Grab some time to talk with us about whatever is on your mind right now. Maybe keep it to just business stuff, but hey, if you want to talk about the state of the Dodgers pitching, your thoughts on Anora, or the latest episode of My First Million, sure, I’m down.