💰 The best way to tax-free riches?

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Chris Dunn, Nikki Dunn & Travis Devitt
February 07, 2024

What’s on the Menu 🍴

Everybody’s always looking for ways to avoid paying the Tax Man.

So today we’re covering a unique way to build wealth while keeping a larger portion of your stack.

Also, we explore some risks to the crypto ecosystem.

Let’s roll!

  • Is The Future of Crypto… Centralized? ₿

  • Qualified Small Business Stock… A Way To Tax Free Riches 📉

  • Chart of the Day: Rents fell for the third month in December

Today’s newsletter is a 3 minute read.

Is The Future of Crypto… Centralized? ₿

The crypto world is buzzing with the debut of Bitcoin Spot Exchange-Traded Funds (ETFs), marking a watershed moment for digital currency acceptance.

But here's the twist: this big leap forward might just put the cherished ideal of decentralization on a tightrope.

A floodgate of investment is set to open, potentially padding up those digital wallets, but at what cost to crypto's rebel heart?

Decentralization on the Line?

  • Who's Holding the Reins? Giants like GBTC are already clutching 3% of Bitcoin's stash. If BlackRock deploys only 1% of its assets under management into Bitcoin, that would be around 10% of the supply at current prices. This poses huge risks to decentralization.

  • Security or Bust: Right now, Bitcoin's security is as solid as a rock, thanks to its decentralized beat. But fast forward a bit, and we might hit a snag with miners losing their groove, especially with Bitcoin's reward halvings and the market's mood swings.

Regulatory Rollercoaster:

  • A World Divided on Digital Dough: Diverse regulatory approaches, from the U.S.'s skepticism under figures like Donald Trump to China's implementation of the digital Yuan and Europe's exploration of a digital Euro, highlight the complex regulatory environment impacting crypto's decentralization.

  • Big Brother's Eye on Wallets: Proposed regulations, especially in Europe, threaten to impact the autonomy of decentralized wallets, further challenging the principle of decentralization.

  • Today we saw Binance delist Monero after pressure from governments. Will this new anti-privacy trend continue?

The Road Ahead:

Sure, the path for crypto is lit with the glow of Bitcoin ETFs, but it's not all sunshine and rainbows.

As we dive headfirst into this new era, juggling the influx of investments and the maze of regulations, the real kicker is keeping the spirit of decentralization alive.

Balancing mainstream acceptance with the preservation of decentralized principles remains a critical challenge for the future of crypto.

Qualified Small Business Stock…
A Way To Tax Free Riches 📉

Got an opportunity to invest in a smaller business or startup?

There may be major tax-free benefits to do so.

We’re talking about “Qualified Small Business Stock” (QSBS) and the IRS has pretty generous limits on how much in tax-free gains you could possibly harvest.

There are rules of course… so, let’s break it down.

  1. The business must be a C-corporation: If you’re starting a business or wanting to invest in one, it’ll benefit you to be sure it’s properly structured as a C-corporation.

    If you build a really great sellable business, but it’s an S-Corporation, the tax-free rules won’t apply.

    Got a sellable business structured as an S-corp that you think could skyrocket in value? There may be strategies available for you to convert your S-corp to a C-corp for a future sale and eventual QSBS gains.

  2. It must be U.S. corporation.

  3. Limits on assets of the business: Total assets of the business prior to stock issuance must be less than $50 million (including after you raise funds).

  4. Certain industries won’t qualify for QSBS: Shares in industries like healthcare, law, engineering, architecture, accounting, performing arts, consulting, athletics and financial services DON'T qualify as QSBS.

  5. 5 year holding period must be met: You must hold the QSBS for at least 5 years to qualify for the tax-free gains. If you don’t hold the 5 year period, you can do something called a 1045 rollover (similar to a 1031 exchange in real estate).

  6. Tax-free gain limits: Your gain can be the greater of 10 million dollars, or 10 times your basis in the stock. There are strategies for harvesting very large gains, so consult with a finance professional.

Who can own QSBS?

  • Individuals

  • Trusts

  • Partnerships

  • LLCs

  • S-Corps

The qualified small business stock strategy has been used by our mentors in our Wealth Building Community from start-up investing. So, it’s not that uncommon to see it as a part of people’s “Wealth Building Machines”.

But, it’s not just beneficial for investors, it’s also great for founders.

It’s absolutely a strategy for a lot of business owners to start and run their business with an exit in mind.

So, if done right, they can be on their way to a huge wealth hack by positioning themselves with qualifying small business stock shares and continuing to build major value.

Data of the Day:
Rents fell for the third month in December 📉

Delicious Bites 😋

Food For Thought 🧠

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DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.