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What is staggered wealth through entrepreneurship. You create an S Corp. and you put yourself on as an employee. You take a reasonable salary per IRS regulations. You grow this business for twenty years, but you never take a salary of more than $50K or $60K. You take other income which is adjustable through quarterly distributions throughout the years. Then you park that distribution money somewhere else.
Many people would be really troubled with that because they don’t understand how wealth works. Wealth works by accumulating things or manufacturing things. There’s wealth and there’s income.
Now let’s say you don’t own a business and you have an income of $150K per year. Let’s say you lose damn near $68K to $70K through taxes or some other expense. Let’s just say that year after year your salary goes up $25K. At the end of 20 years, you’ve had this huge salary. You can no longer work because the company or industry changed, right? It’s over.
Now let’s go back to the business owner who never took a salary of more than $50K to $60K. Over those 20 years, he’s built an asset called a business. Say it’s a manufacturing concern. He used company money to pay off the building that the business was in. At the end of 20 years he decides he doesn’t want to do this anymore. He sells the company to someone else, but he maintains ownership of the building. He tells the new owner he will lease the building to him.
He sells the company for $5 million. He leases the building for $300,000 per year. Who’s better off? Is it that person who took the large salary or the business owner who took the small salary and used his business to make money for now and in the future. He got money on the sale of the business. He got lease money. Plus, he only had to pay capital gain taxes on that income since it was investment income.
A lot of people make high incomes, but they aren’t getting wealthy. This is how a lot of professional ball players and entertainers go broke. They make a lot of money, but aren’t set up for the future.
When you’re building a business, the front end is usually pretty hard. You’re not going to have the “Golly Gee Whiz” factor. If you’re building something for the ages or for your children, you have to be in a durable market.
Now, let’s talk about the first rule of building wealth – preservation of capital. Your biggest problem with a business or a job is maintaining capital. The biggest bite on that capital if you have a job is taxes. If you have a business it could also be taxes unless you do certain things. Knowing that, when you have a business, you choose how you invest money. Notice I said invest, not spend.
So, let’s say your business did $850k this year and it is December and you have $400K in your corporate accounts. You could pay taxes on that. I am going to walk you through what a friend of mine does. Typically, he would buy things for the business. He would buy vehicles for the business or advertising.
Then he started buying buildings. Whenever there was so much money in the business, he’d buy another building and open another branch. I asked him why are you doing this? He said it was a way for him to buy buildings tax free right now. He plans ten uses for that property before he buys it. That way if his business can’t make it there, there are ten other businesses that can.
He doesn’t take loans out. They are completely paid for. Since these buildings are business expenses, they are tax deductible. The company now owns four commercial buildings that were paid for by corporate money. He hasn’t paid federal taxes in about fifteen years.
He doesn’t take a big salary. He lives in a nice neighborhood and drives a nice car. If you saw him, you wouldn’t believe this guy is worth about $9 million. By spending money through the corporation, he doesn’t pay taxes while he’s building an asset. You get to use your money in ways that benefit you, before you pay taxes.
The thing with online businesses is you don’t build assets a lot of times. In my case, I’m building intellectual property. I have my books and courses and these are assets that can make money for years and years to come. But typically, if you’re operating on Amazon and eBay, you aren’t building assets unless you take some of the money and invest it in some other financial instruments. A lot of people aren’t doing that.
That’s how the game is played. You get to use company money to build wealth for you later on. With staggered wealth, the money earned goes into the operating account. When the money gets to a certain level, you have the option of shifting it to other accounts or paying it out to yourself. If you pay it out to yourself, you’re going to pay a lot in taxes.
If you take that money and spend it on an asset for your business, you’re not going to pay taxes on it. The asset could go up in value or down in value, but essentially, you are playing with money that if you took it out of the business, you would be paying a significant amount of tax on it. So, you leave as much money in the corporation as possible. The more money you leave in the company, the less taxes you’ll pay. The less taxes you pay, the more money you have for wealth-building activities.
Many people are building businesses to sell. There’s no intention of holding onto them for more than five years. A lot of this came from these hedge fund corporations. Essentially, a hedge fund will go in and buy a business then sell off a lot of the assets and make it lean, cutting costs by firing people. Then they will streamline it and make it more efficient to ultimately flip it and make a lot of money. That has encouraged a lot of entrepreneurs to build businesses to sell.
I don’t recommend building your business like you’re going to sell it. Build it like you’re going to hold onto it forever. One of the reasons it is hard for some people to build a solid business is that they are trying to get to the end as soon as possible.
One of the reasons people are so poor in this country is because they have no assets whatsoever. That’s why you’re better off taking that smaller salary out of your company so you can build assets rather than taking a high salary with someone else’s company. You can never have too much money.
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