🚀 Elon Musk and taxes

Taxable Events: The Good, The Bad, and The Ugly 😡

What can you learn from a billionaire’s taxes?

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Today’s Rundown 👇

  • Elon Musk's 2008 Tax Troubles 💸 (Story)

  • Use the Tax Code to Your Advantage 👀 (Insight)

  • The “Profit First Tax” Challenge 💡 (Action)

Elon Musk's 2008 Tax Troubles 💸

(This section contains a business story that you need to know)

In 2008, while Musk was in the middle of a divorce that was more expensive than a f**king trip to Mars, he found himself in a situation that would make even the most seasoned entrepreneur sweat bullets.

Musk had a huge chunk of his wealth invested in Tesla and SpaceX. Tesla was burning through money faster than a crackhead at a free cocaine buffet, and Musk had to use his own personal funds to keep the company from going tits up.

All of this while dealing with a tax bill that would give even the most stoic accountant a f**king aneurysm. But that's merely the beginning, you sexy bastards…

Musk also had to pay taxes on the sale of his shares in PayPal, which he had co-founded and used the proceeds to fund his other companies. This left him with a tax bill that was more daunting than a prostate exam from Edward Scissorhands…

In a court filing from 2010, Musk confessed that he was so strapped for cash, he had to resort to borrowing money from his pals just to keep the lights on and put food on the table.

🥴 So how much money did Musk owe to Uncle Sam? Here’s a rough analysis based on the sale of his PayPal stocks…

  1. In 2002, eBay bought PayPal for $1.5 billion in stock. Musk owned 11.7% of PayPal shares, so his shares were worth $180 million.

  2. Musk had to pay capital gains taxes when he sold his PayPal shares. Capital gains are profits from selling assets for more than the purchase price.

  3. The tax rate for capital gains depends on how long you held the shares. If Musk held the shares for more than a year, he'd pay the long-term capital gains tax rate. In 2002, the long-term capital gains tax rate for the highest income bracket was 20 percent.

  4. Let's assume Musk held his shares for more than a year. He sold them when eBay bought PayPal. He would have owed $36 million in capital gains taxes. That's 20 percent of his $180 million in PayPal shares.

If Elon Musk can go from borrowing cash to cover his taxes to becoming one of the richest people on the planet, you can probably handle whatever life throws your way.

Keep your head up, keep pushing forward, and who knows? Maybe you'll be the next billionaire entrepreneur with a story that inspires others to keep chasing their dreams, no matter how tough things get.

Key takeaway: This story teaches us about perseverance, vision, risk, adaptability, reputation, and long-term thinking…but more importantly, it warns us about how taxable events can get extremely out of hand. 

Use the Tax Code to Your Advantage 👀

(This section teaches business insights to implement into your life)

👉 INSIGHT: in order to take advantage of tax codes, you must be a business owner and/or a real estate investor.

If you want to take full advantage of the tax code, you either need to be...

  1. A business owner

  2. A real estate investor

Doing one or both of these opens you up to a variety of tax strategies. According to Grant Dougherty EA, MBA, here’s how:

Qualified Small Business Stock Exclusion: “This alone is the single best incentive in the entire code,” advises Grant. A qualified small business can sell shares of their business to exclude $10 million or more in capital gains. 

Retirement Accounts: With a Solo 401(k) or SEP IRA, self-employed business owners can contribute up to $69,000 in 2024, meaning they can save thousands while investing for the future (hiring a spouse also helps maximize self-employed retirement accounts to double this investment). 

Bonus Depreciation and Cost Segregation: Real estate investors are able to defer thousands of dollars in taxes thanks to strategies like cost segregation, combined with bonus depreciation (currently depreciation is at 60 percent). 

Tax Credits: Most parents have heard of the child tax credit, but business owners and real estate investors can also use special credits such as the following…

Then it’s all about choosing the right entity for your business. The IRS recognizes Sole Proprietorships, Partnerships, S-Corps, and C-Corps. Each has their own good and bad qualities business owners and real estate investors should be aware of. 

But here's the catch: the rules can vary depending on where you live and your personal tax situation, so don’t take it lightly this tax season…

The “Profit First Tax” Challenge 💡

(This section provides actionable tactics you can apply right away)

Mike Michalowicz's book Profit First is like the Kama Sutra of cash management – it's all about finding the right positions to keep your business satisfied and profitable. Here’s a brief overview:

  • Step 1 - Set up a profit-first account: Set up a separate account just for your profit. Every time you get paid, take a fixed percentage of that revenue and put it straight into this account.

  • Step 2 - Allocate funds for taxes and expenses: Create separate accounts for taxes and expenses, and allocate a percentage of your revenue to each one.

  • Step 3 - Pay yourself a salary: Set up another account for your salary and pay yourself a fixed amount each month. Like your profit account, this one's off-limits to anyone else.

  • Step 4 - Reinvest in your business: With the remaining money, it's time to reinvest in your business. Use this money to buy new equipment, hire new talent, or take on new projects.

Profit First may not be a book that'll make you hot and bothered about taxes, but it's got some insights that'll help you manage your business finances like a pro. Keep your business profitable and prepared for the inevitable tax season.

Memes of the Week 🤣 

Bite-Sized Reads 📚

[Read] The main principle Profit First is to set aside a percentage of revenue as profit before blowing your load on other expenses, including taxes.

[Read] Learn Jordan’s insider playbook for making a fortune on Wall Street in his new book, The Wolf of Investing.

[Read] Ending months of speculation, eBay announces a stock deal to buy the leading online payments company, Paypal for $1.5 Billion.

Vote For Next Week👇👇

Publisher: Jordan Belfort

Editors in Chief: Brock Swinson and Davis Richardson

DISCLAIMER: None of this is financial advice. This newsletter is strictly for educational purposes and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research. 

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