087 | From Main Street to Blockchain: Advanced Capital Gains Tax Moves for Big Exits

Patrick: [00:00:00] Welcome back to the Vital Wealth Strategies Podcast. I’m your host, Patrick Lonergan, and it is good to be with you here today. This is our first episode coming out right after Independence Day. And I hope you’re able to rest and take a moment to remember the freedom and the opportunity that we have in this country as entrepreneurs.
Another freedom that I appreciate is the freedom of speech and the freedom of religion. I appreciate that. I can come on here and share. True freedom comes through an authentic relationship with Jesus Christ. I. And no one’s going to come threaten my wellbeing by saying that there are many countries where that isn’t true.
Just owning a Bible could be an imprisonment or death. With our freedoms, we really do have a unique chance to build something meaningful, and I’m grateful to walk this road with you. And speaking of meaningful, I want to share something brand new that we’re starting for entrepreneurs who want to grow in their fate.
We’re just curious about the scriptures and how they’re relevant to us in today’s society. We’re kicking off a weekly Bible [00:01:00] study called Vital Walk, an Entrepreneur Bible study. It’s going to happen every Tuesday morning at eight 30 Eastern, seven 30 central. We’re going to dig into the scriptures together and go on a journey of figuring out how God’s word shapes the way we live our lives and lead our families, run our businesses, and build our teams.
That sounds like something you want to be a part of. Send me an email atPatrick@vitalwealth.com or check out the show notes to get a Zoom link or watch the recording. I’d love to see you there. Bring your coffee, bring your questions, come ready to be a part of the process where we all grow in our faith.
Again, email me atPatrick@vitalwealth.com or check out the show notes for the details. Now for today’s episode, we’ve got a lot to cover. First, I’m going to do a quick review of the one Big Beautiful Bill Act or OBBB. A, I’m not sure what the shortest way is to say that, but it’s a sweeping piece of legislation that was just signed into law on July 4th, yesterday.
I’m recording this on Saturday the fifth, uh, with thousands of pages that affect how you run your [00:02:00] business, pay your tax, and protect your estate. If you’re having a great year in your business and you’re concerned about how much you’re going to owe the IRS, now is the perfect time to start tax planning.
We can help you incorporate the new legislation. You also have enough time to work with our team. To vet strategies and potentially be one of the many clients that saves hundreds of thousands of dollars in income tax. Reach out to us today@vitalstrategies.com slash tax and set up a time to talk with me about how to build a strategy to minimize your taxes, master wealth, so you can live a great life waiting till the end of the year to start your planning.
We’ll make it challenging to create an and execute on a comprehensive tax strategy. Again, that’s vital strategies.com/tax. Now. After we talk about the one big beautiful bill act, we’re going to dig into a topic that is on a lot of your minds, capital gains taxes. If you’re planning to sell your business, offload a big chunk of real estate or cash in on highly appreciated investments like stock or crypto.
The tax bill [00:03:00] can feel like a hammer, but there are powerful ways to protect your hard-earned gains, and I’m going to break down those in simple practical steps. So stick around because by the end of this episode you’ll have a solid framework to take full advantage of the one big beautiful bill act and minimize your capital gains tax you’ll owe when you decide to sell for all the wealth that you’ve built.
Alright, let’s dig into it. Here’s an overview of the one Big Beautiful Bill Act. Now some background. It’s nearly a thousand pages. It passed Congress narrowly. It got hung up in both the House and the Senate. It extends to 2017 tax reforms, which were the Tax Cuts and Job Act that Trump passed the first time.
And it adds new investment incentives and also it keeps the personal tax rates stable, which were all set to be increased in 2026. So some key takeaways for us as entrepreneurs, A, the pass through entity tax, the QBI deduction. Is a great deduction. It’s a 20% deduction, and that’s been [00:04:00] extended. Now, the phase outs were adjusted higher.
There’s sort of a gap in, in those phase outs where if you earn in that gap, you, you lose the deduction completely. So, uh, that’s an important piece. And again, the QBI deduction is one of those things that you need somebody to help you execute on. So we’re happy to help you connect with your CPA, but this all needs to be done before the end of the year.
You need to optimize your wages. Revisit your s elections and restructure your entities as needed. Now, C corporations, they get an interesting opportunity. We’ve been frustrated by C corporations in general, uh, clients that come to us that have those, we generally try to get out of those if they don’t have another operating entity that they can, uh, run the business through because there’s a double taxation there.
So the corporate tax rate remains the same at 21%, but. There’s a new 10% domestic reinvestment deduction. So if I have all these retained earnings in my corporation, we’ve had clients that have a million dollars of retained earnings that they, [00:05:00] they don’t know how to get out. If you invest those, those retained earnings, you get a 10% deduction, which is pretty nice.
’cause in the past, after you paid the tax on those dollars, there was no opportunity for a deduction. So. This may cause some people to find new opportunities to make some domestic. So here in the United States, uh, reinvestment that can help them spend down some of that retained earnings. There’s, there’s some opportunity there, which we’re always looking for new opportunities with C Corp.
Next, the individual tax rates, uh, this is the one asterisk to the tax rates remaining the same. The 37% is still the top tax rate that’s been extended. It was set up to go to 39%, uh, 39.6, I believe. But the problem is, and this is gonna affect some of you, there’s a 3% surcharge on incomes over $5 million. So it really does get up to 40% if you are, uh, for every dollar [00:06:00] over 5 million.
So that’s something that we, we need to be mindful of and really we can start looking at, uh, additional planning strategies to bring that, that taxable income number down under 5 million. So. Um, there’s some ways to do that. We just need to manage the adjusted gross income. That’s the a GI. Uh, we can do that with retirement contributions, charitable giving, family income splitting, uh, can be a, a useful tool.
So that’s, uh, again, another, another opportunity next, and this is a big one, uh, estate and gift tax. Uh, these have been expanded as well. They were set to sunset. So right now, the. Uh, exemption for an individual, uh, is 13.6 million that was set to go down to 7 million per individual, so effectively get cut in half.
Now, married couples get 27.22 million, so double that personal exemption. Uh, and anything above that number is taxed at 40%. So, [00:07:00] uh, there’s still a number of strategies available to us. Uh, we’ll call ’em slats. Spousal lifetime access trust can be a great tool to. Sort of lock in the, um, the value of our estate, grantor trust, discounted family business transfers, all of those things can, can be utilized to, to really bring the estate tax down.
We do feel like the estate tax is the only optional tax. Um, there’s enough time that if you really wanna solve that problem, we can start to attack that. So again, if you’re, you’re interested in working on your estate tax problem, if you’ve got an estate over $27 million. We’ve got some clients that are X-raying exiting their businesses for 50, a hundred million, $200 million.
Those are real numbers. And you’ve already paid payroll tax, you’ve already paid income tax, you’ve already paid capital gains tax, and now they’re gonna get you again for, uh, estate tax. So there’s not a tax out there that I like. Uh, it all feels like extortion to me. If I don’t pay it, the government comes and steals my property.
Sounds a lot like the mafia, but, um, there’s [00:08:00] legitimate ways inside of the code to, to minimize those taxes. We wanna help you with that. Check out vital strategies.com/tax and we can help you get started today. So next on the list is bonus depreciation. I love this one. We own a lot of real estate and this is something that, uh, just encourages what I consider, uh, new development.
So, uh, a hundred percent bonus depreciation was extended through 2027. Uh, last time it, we had a hundred percent and then it stepped down to 80, 60 40. So what that means is if I. I buy an asset that has a 15 year depreciation schedule or less, I can use all of that depreciation in the first year, uh, which makes me a little more excited about going out and buying things.
Versus if I buy a hundred thousand dollars asset and it’s depreciated over 15 years, uh, I only get one 15 of that every year instead of all a hundred thousand dollars in the first year. So that’s really nice. Uh, and another provision that’s, that’s interesting is. Extra deductions for tips [00:09:00] and overtime, I think can absolutely help the, the hospitality sector employment’s been challenging in those, those areas.
And so this, this could be useful. I believe the number’s 12,500, uh, that you get tax free on the tip side of things. And there’s also a limit on the overtime. There’s also, when it comes to these two things, there’s income caps, you can’t make too much money. So I was thinking originally when I heard this, this sounds like a great opportunity as business owners too.
Pay ourselves a fair amount of overtime. Well, unfortunately, most people listening to this, our incomes are gonna be too high. And so we’re, we’re not gonna be able to take advantage of that opportunity. So here’s some practical action steps that you can take. We need to take some, a look at entity setup and just modeling those things out and make sure that we’re in the most efficient setup.
Uh, every business is different. Personally, I feel like. Most of our clients end up with all three entity types. They end up maybe with a C corp. Um, we can talk about how that [00:10:00] fits. They end up with a partnership. There’s some interesting tax opportunities there. They can end up with pass through entities with, uh, an LLC and maybe, uh, probably even an S corporation as well, uh, LLC, taxed as an S corp.
So, uh, the combination of all of those can create some real nice tax efficiency. So it’s something that should be looked at and modeled out. I think there’s also a look at how to accelerate gifting under the current high exemptions on the estate tax side of things. Um, the, the estate taxes, that one political ping pong ball that it’s been all over the place.
So in my lifetime it’s been zero. Uh, there was a, uh, any dollar was, was, maybe it was a million dollars. A million dollars. There was anything above a million was taxed at 40%. It’s also been unlimited. You could die and not have any estate tax, which is also, um, awfully interesting. And then it’s been everything in between.
So, uh, it gets bounced around all over the place, much more than the income tax rates. It’s a political topic [00:11:00] that’s new legislation or new democrats get in party and they decide or get in control and they decide that they want to change that, that piece, uh, it could come down drastically. So. All that to say now is the time to take advantage of these high exemptions.
Uh, we can do some gifting to utilize that also, bonus depreciation, let’s use it while it lasts. There’s so many opportunities on the tangible property regulations. It’s something most CPAs don’t have a good handle on. We have clients that save millions of dollars using this, this strategy with real estate and all of the opportunities there.
So. Again, something that you need to take advantage of. And then finally, just monitor your adjusted gross income. If you’re above $5 million, you get a 3%, uh, additional tax. So put you in the 40% bracket. Plus, if you look at where you’re at in state income tax, uh, if you’re making that money in California, you’re over 50% of your income going to [00:12:00] the, the taxing authorities, which is, uh, insane to me.
So. Um, again, monitor that. Keep the income below 5 million if at all possible. Now, if you wanna learn more about how to incorporate these new opportunities from the one big beautiful Bill act, go to vital strategies.com/tax and we’ll start helping you pay less tax. Okay, now let’s shift gears and diving into something that we see entrepreneurs trip up on all the time.
Uh, and that’s capital gains tax. Unfortunately, too many people just think it’s a part of. Doing business. CPAs will be like, Hey, congratulations you, you grew your wealth. Now you gotta pay tax when you sell this business. I hate that comment. I think that’s foolish. There’s so many opportunities to, to minimize the tax.
So we’re going to dig into those. Uh, the capital gains tax is currently at 20%, but when you factor in other things like net investment income tax of 3.8 plus state income tax, we can easily be over 30% depending on what [00:13:00] state you live in. So. I don’t like having silent partners that don’t do any work.
That takes 30% of my gains when I’m, when I’m all said and done. And that’s what capital gains tax is. It’s, it’s the government going, Hey, thank you for doing business here. We’re going to, even though we didn’t contribute anything to this, we’re gonna take 30% of, of what you built. So, uh, we’re gonna talk through today how to do, uh, create a strategy to bring that number down the best we can.
But I want you to hear this. You do not have to accept that bill. You don’t have to accept the tax bill and just move on. They’re smart, legal, and powerful strategies that can help you defer, reduce, or even eliminate a chunk of those taxes. That means more freedom, more options, and more capital to reinvest and support your family’s future.
So I’m gonna break these strategies down into categories so they’re easy to understand and we’ll keep it in plain language. Uh, no deep dive into the tax code. Uh, I might quote some. Some code [00:14:00] sections. If you’re curious or wanna pass these on to your CPA, feel free to do that. But these are just practical tools that you can take back to your advisors and say, Hey, could this work for me?
So grab your pen, because this could literally mean keeping hundreds of thousands, if not millions of extra dollars in your pocket. So let’s jump in. We’re gonna start off with deferral techniques. Okay? This just means I’m moving the tax down the road in, in some form. Now I. The reason I think that makes a lot of sense is a lot of times with deferral, let’s just use a million dollar example.
If I have a million dollar capital gain and I pay the 30% tax state federal net investment income tax, and I, I net 30% of those assets, all right? So now I have 700,000 instead of a million if I earn 5% on my million dollars. There’s $50,000 a year of income that, that it’s creating. So if I’m deferring that I get $50,000 a year if I pay the tax [00:15:00] and then invest the money at 5%, now I got $35,000 a year.
I don’t know about you, but I would prefer 50 over 35. So, uh, that’s why we think deferral strategies can make a lot of sense. It can allow me to take a lot more income. It doesn’t actually, uh, compound the tax problem. I’m just moving it down the road. So. A few opportunities to do that, and there’s a number of different ways that we can structure these, but they’re installment sales.
Okay? So if I sell my million dollar asset on an installment sale, and let’s say I get paid, uh, a hundred thousand dollars a year over 10 years, that means, uh, and I’m charging interest on that. So that means I’m getting the interest plus the principal payment, and I’m paying the tax on the principal as I receive it.
Okay? So. When those dollars come in, I’m paying the tax on it. Now, there’s a number of different ways to do it. It’s simple. I could create, um, an installment sale, a contract for deed. [00:16:00] It’s basically owner financing. I’m selling my property, um, or my asset, my business to some, a buyer, and they’re, they’re making payments over time.
That is a very simple structure. It’s done all of the time. So that’s one opportunity. It’s not very complex and it doesn’t do a ton for me. It just spreads out in my gain over, over a number of years. Gives me opportunity to plan. Next is a monetized installment sale. So the, the interesting thing is that that loan that I have is valuable.
I could borrow money against that, take all the capital upfront, invest it, uh, and then the dollars that come in can satisfy that, that loan. So that’s another. Opportunity that’s out there. Again, we would have to get into the specific reasons why we would wanna do that versus another. Um, another opportunity.
Uh, and then again, there’s just more under it’s internal Revenue code section 4 53 that talks [00:17:00] through all of the opportunities with the installment sale. Again, number of different opportunities we can look at there. Another one that I like for real estate is a 10 31 exchange. This can be a fantastic opportunity, uh, if I’m below that estate tax threshold, okay?
I can use 10 31 exchange to buy a property, sell it, move into another asset, and continue to move it down the line. And then if I hang on to that asset until I die, I get a step up in basis. So let’s say I had $20 million in gain in that, that asset, I depreciated it down to zero. I had $20 million in gain, and the, let’s just assume I still have a $27 million exemption.
My kids would receive that asset completely tax free. The, the cost basis would move up to $20 million, and they would get that asset without having to pay any capital gains tax on it. So a 10 31 exchange can be a fantastic tool to, to minimize the tax, the capital gains [00:18:00] tax when I sell an asset and go buy another one.
And it can be a perfect way to do it now. The 10 31 exchange, it, there’s some complexity there. You have to use an intermediary to handle all the funds, but there is an interesting opportunity with the 10 31 exchange, even if I don’t go through with it, I can use an intermediary and move some dollars from this year into next year if I want to.
Uh, ’cause I have a timeframe to identify my property and close on it. Well, if the dollars go to the intermediary and I don’t find a, a. A property that meets my criteria to invest in, I get those dollars back and when I get the dollars back, the year I get those back in gives me an opportunity to pay the tax at that point so I can use a 10 31 intermediary, even if I’m not necessarily planning to, to buy a new asset just to shift dollars to another tax year.
So something to think about, some creativity there. Now there’s also some deferred comp that can come into the mix that we can use for our executives. We’re [00:19:00] not gonna dig too deep into that, but it’s, uh, alternative to, we’ll say, uh, granting them stock in the company. Um, deferred comp 4 0 9 a plans. We have a number of clients that have 4 0 9 A plans.
Um, and then I think one of my favorite strategies is the deferred sales trust. Okay, so this is referred to as A DST, not to be confused with a. Delaware statutory trust, and we had a whole podcast episode on this with Brett Schwartz. It was great. Go check that out. We’ll have a link to that episode in the show notes.
But, um, the deferred sales trust again goes back to that concept of, you know, a million dollars comes in, uh, and in this scenario, I’ve got a cash buyer. So the cash buyer buys the asset from the trust. I deeded the assets into the trust, but there’s an installment sale back to me. There’s a ton of flexibility on how this works.
Now you can push that, that tax down the road for almost perpetuity. You know, we can, uh, leave the [00:20:00] assets in the trust. The my kids can inherit that trust and we can just keep moving that along. So again, if I have a choice of, let’s, let’s dial the numbers up a little bit. If I have $10 million that comes into the trust.
I pay 30% and I have $7 million. I would rather have $500,000 a year of income coming outta that trust versus 350,000 all things being the same. Pick the interest rate. I don’t really care. Let’s call it 7%. You know, now I’ve got 700,000 versus 49, 400 $90,000 coming outta the trust. So, uh, a huge difference.
The deferred sales trust can be a fantastic tool to help us use lots of of dollars, uh, to create income for us. It can also be an alternative to a 10 31. If I don’t like the structure around my, um, the timeframe I have to wait to, or the timeframe I have to go buy a new property. I could use a deferred sales trust to extend that timeframe out for a decade.
If I wanted to again, go [00:21:00] listen to the episode with Brett Schwartz, it’s great on the Deferred Sales Trust, and we’re thinking about having him back on the show just to dive deeper into that topic, we think it’s good. And then finally there’s, there’s an opportunity, um, where you can do a private annuity.
Dollars can go in there and, um, you can control some of the investment. And again, it’s more of a, there’s some tax deferral that can, that can happen inside the private annuity, uh, that are, are, are unique. And again, that’s gonna be just IRC 72. Alright, now let’s get into reduction strategies. Deferral strategies are great, but I like reduction.
I like to bring the tax down as, as low as I can possibly get it. So, um, opportunity zones. They’ve lost a little bit of their luster, but they’re still out there. Uh, there can be some unique opportunities to utilize opportunity zones to reduce some strategy or reduce some capital gains tax. There’s also how we [00:22:00] structure the sale can be, uh, a huge difference.
If I. Have an asset sale versus a stock sale. Okay. Um, asset sale can be, um, an issue when I have an S corp and I, I sell the assets out of the S corp. That’s how most buyers want to buy. Okay? And that can create some, uh, issues for me, especially if there’s non-compete and that type of thing. Uh, I get all these different allocations, non-compete.
Uh. Generally is the, there’s non-compete. They don’t want you selling the business and going and starting up a competitor tomorrow. That non-compete, you know, whatever is allocated to that gets treated as income tax. Um, and the asset sale, um, you know, again, is uh, not as efficient as a stock sale. We can geek out if you wanna set up a time to talk, but the, the stock sale, we can utilize the stock sale and be in the capital gains tax, uh, treatment there.
The [00:23:00] problem is most people don’t want to buy a stock because they don’t know what skeletons are hiding in the closet from a lawsuit perspective. And if I sell the stock and I’m the buyer of that stock, I inherit all of the past problems. If I just buy the assets, I’m in good shape and all I really have to do is, uh, I don’t have to worry about any of those, those past actions by the stockholders, uh, I’m, I’m safe from a litigation perspective moving forward.
So. There are ways to structure it where the, the buyer gets asset sale treatment and the seller gets stock sale treatment. Again, there’s some complexity involved in that, but it’s something you should be mindful of. Find the right professionals that can help you do that. Don’t just accept the fact that it’s going to be an asset sale and you’re going to, um, proceed that way.
Okay. This next strategy, again, one of my favorites. Now it’s a leveraged direct investment strategy. And so what that means is I have a portfolio of assets. Let’s [00:24:00] use, um, a million dollars of assets, okay, in a stock and bond allocation. And, uh, we’ve got some providers that are able to provide some, some leverage.
Now, they don’t necessarily impact the. The risk that we’re taking on in that portfolio. Uh, we’re keeping the risk profile exactly the same, but what we’re doing is we’re expanding the number of holdings from, let’s say a hundred holdings to 500 holdings. Okay? And then they’re capturing losses as they happen inside of that portfolio.
Uh, and so they, they capture those losses and they buy the, uh, a similar position. There’s some wash sale rules. We won’t get into that, but they effectively set this up where. I might have, if I invest a million dollars, I might have 70% of that in the form of losses in the first year. So $700,000 of, uh, I’ll say paper losses that I can use to offset capital gains of my business, my real estate, my other [00:25:00] stock holdings, my crypto, that type of thing.
So if you have enough runway, and let’s say I have $3 million and I’m gonna have a 10 or $20 million sale down the road and $3 million in my. My brokerage account, I can leverage that up, and if I get 70% of that in the form of losses year over year, there’s $2 million and another 2 million and another 2 million, and so I might end up with six $8 million in losses that are there to offset my $10 million capital gain when I go sell my business.
Again, a fantastic strategy. This takes some time and energy to set up and execute on, so don’t call us on. You know, uh, July 8th when this episode comes out and say, Hey, I’m selling my business at the end of the month. Can we do that leverage direct index strategy that you talked about? The answer will be, unfortunately, yes, we can, ’cause we can do it for this year and everything that we, all the losses we capture for this year will, will work.
But we don’t have enough runway to set off, [00:26:00] offset the entire investment. So we think that’s a, a fantastic strategy. Underutilized. More business owners should use it. They should start today though, uh, and start stacking up those losses if you’re planning to exit your business at some point in the future.
Okay, this is another one of my favorites, but I have a huge asterisk that I put next to this one. It’s 1202 Qualified small business stock sale. Okay? So there’s a number of provisions around the 1202. It has to be a C Corp. Earlier in this episode, I talked about how we don’t love C Corp. Okay? But. If you are going to start the business with the intention of selling it, and like we’ve got a client right now that runs a successful business, um, and they’re starting up another business, they don’t need the cash flow out of it.
And the goal is to just grow this thing and sell it to private equity. The 1202 QSBS opportunity qualified small business stock is fantastic because you get $10 million of capital gains tax-free [00:27:00] exclusion with original issue C Corp stock. Okay? There’s some revenue threshold. It’s qualified small business, so it has to be a small business.
If we grow above a certain threshold, we lose that. Uh, but that, the cool thing is that $10 million that can be spread to a number of different people. It can be me, my wife, my children, like I can start, I, I might have $50 million of capital gains exclusion, uh, using the QSBS. Now, there’s all sorts of other reasons why we don’t necessarily love a C corp.
This goes back to my earlier comment about. I like to have a variety of different entities in the mix, uh, to take advantage of the different tax opportunities. So that’s, that’s something that’s, um, out there that should absolutely be looked at if you’re considering a, a sale. Okay. The final one is just using previous capital losses.
Uh, for some reason you had, uh, this ties pretty closely to the leverage direct index in investment [00:28:00] strategy we talked about where we’re. We’re sort of stacking up those losses over time to offset those gains. So capital losses are interesting because they don’t offset ordinary income. We can use $3,000 of capital losses to offset our ordinary income.
The rest of them just sit there until we have capital gains to offset. So if we had a million dollar capital loss because a deal went bad, or uh, we thought this one stock was going to go to the moon and we invested heavily and it went to zero, right? Those capital losses can be used to offset other gains.
I don’t love this strategy ’cause it means we actually lost money. I, I like the strategies where we can, uh, create paper losses, uh, and, and offset real capital gains. So that’s, um, that’s probably my favorite is the reduction strategies. Let’s really reduce the tax, not defer it. Okay. Now a close second to that are going to be philanthropic strategies.
Um. I love [00:29:00] this because this fits nicely into our concept of the most valuable things in life are this acronym called reach, s for relationships, ease for experiences. A’s for advancement and growth, C’S for contribution, it’s better to give than receive. So if we’re going to be charitable, if we’re going to be giving, um, let’s do it with a, a heart of bringing tax bill as low as possible as well.
Now, all of these strategies we’ve done, the math, these philanthropic strategies don’t work. If you don’t have charitable intent, so if you’re thinking, Hey, I’m gonna go use a charitable remainder trust or a charitable lead trust, um, to bring my tax bill down, it’s gonna, it’s gonna be net positive to me.
That’s not necessarily the case. No, that’s not the case. So, um, but if you’re a charitable in general, these strategies can be fantastic ways to minimize the tax bill. So, uh, I mentioned too, to start with the charitable remainder trust, as the name says, remainder trust. All of the dollars that are coming out of [00:30:00] that, um, that all of my proceeds go into the charitable remainder trust, and I have to set this up before I have, um, a letter of intent, an offer to purchase my business or building or appreciated asset.
Uh, this, this needs to look like something other than a tax move. Okay? So if you’ve got charitable intent in mind, like you can get this, this process started sooner rather than later. But the cool thing is, is the charitable remainder trust. I can take the dollars off of that trust, so $10 million come in.
I can take, uh, let’s use my $500,000 a year, 5% return every year off of that trust. And then whatever’s remaining, uh, goes to the, uh, goes through the charitable entity that I designated. Okay? So that, that can be a fantastic tool. The charitable lead trust is the opposite of that. So the assets go into the trust and then all of the [00:31:00] income goes to the charity.
And then what is ever is leftover goes to my heirs. So, uh, the charitable remainder trust and then charitable lead trust. Again, great planning tools, uh, to have charitable impact. Next, we have donor advised fund. Uh, we think these are great. They’re low cost to set up. Uh, the dollars that go in are. Um, can be used.
They don’t all have to be used this year. I can make the donation this year, get the deduction this year, but I have to, uh, but I, I don’t have to necessarily give the dollars this year. They can remain and grow in the trust and that could be a, a legacy giving tool. Uh, that works out well. Now there are some limitations on how much money, uh, I can put into the donor-advised funds and still get a deduction, uh, based on my income.
So we can, we can get into that. And then I also have. This is rare. Uh, this I think takes a different heart, but we, we’ve got a friend of mine who donated his entire business, put his entire business [00:32:00] into a 5 0 1 C3 a nonprofit. Um, he takes a little income off of that, but he just decided he was feeling called, uh, and this is not prescriptive, it’s just descriptive.
Um, he just felt like the Lord was calling him to, um. Not worship at the altar of his business. And, uh, through a, a great series of events, and I think we’re gonna have this on as a podcast episode at some point. Um, he just walked through that process of what it looked like to really let go of his business, give it to, uh, the 5 0 1 C3, and just live off the, the wage that he’s making outta that business.
So, uh, again. Fantastic way. All the profits go in there. If he sells the business, uh, the, uh, 5 0 1 C3 gets all those proceeds and it’s doing, uh, what we’ll call kingdom work. So we think that’s, uh, again, a fantastic opportunity. Uh, next we’ve got, there’s some investment strategies. Uh, there’s some [00:33:00] exchange funds where we can take highly appreciated assets, um, stocks, and bring ’em into a mix.
And be able to offset that by, by combining it with different, um, other investments that will have some losses and we’ll eventually be able to work our way out of that. So there’s some exchange funds that allow us to, uh, bring the dollars in. Again, that’s code section 7 21, uh, which is a pretty powerful tool for allowing us to get out of a highly appreciated, let’s say I own.
$5 million of apples stock and I don’t know what to do about that. An exchange fund could be an interesting way to get out of that. So the final one, and this is probably, um, the most fun to talk about, but the one I’m least excited about any client’s doing. Okay. Um, and it’s tax jurisdiction. Okay. So there’s some thought of, hey, if I just move to Puerto Rico.
There is no tax, there’s no federal income tax there. [00:34:00] Uh, it’s 3.8%, excuse me. So the, the tax that we pay is, uh, minimal. The problem is I had to move to Puerto Rico and we’ve got a client that’s actually lived in Puerto Rico and is coming back to the states and they were like, Hey, if you ever need to talk to me to talk to somebody about moving to Puerto Rico.
Um, I’m happy to. Yeah. Things like the power grid, they don’t, they’re not reliable water. Uh, a lot of the basic necessities are just not there. And, uh, uh, we’ve seen clients move from New Jersey to Florida, um, with the, the, the intent of living in Florida. They thought they would like to be in the, but along with the benefit of having lower tax.
And the problem was. All their family was back in New Jersey. They were like, you know what, this is cute, but I think I’m gonna move back to New Jersey. We also had clients move from Southern California to Texas again, uh, with the thought process of, I’m tired of California for lots of different reasons, let’s move [00:35:00] to Texas.
And the problem there was, uh, man, we miss our family. We miss the beautiful Southern California weather. And so I think there’s opportunities to change jurisdictions, save a bunch of money on tax. Only do that if you are planning on moving anyway. Uh, if you’re gonna move in five years and you’ve got a sale coming up, move now.
Okay. Save the, the state tax on the capital gain side of things, we won’t avoid a the federal side unless we do move to Puerto Rico, but in general, move to Florida, Texas, or one of the zero income tax states, uh, Nevada. Those, those are, uh, ways to not pay the. The state income tax, now we have to establish residency, especially if we’re coming from a New York or California, they chase those dollars.
And so, um, having an attorney that can help you establish residency and make sure that you’re checking all those boxes is an important step. But yes, [00:36:00] tax jurisdiction is an opportunity to, to pay less tax. Okay. So we’ve talked about a number of different opportunities. Um. There’s so many opportunities out there.
Please don’t try to do this on your own. Find a professional that can help you. We’re happy to help connect with your CPA if your CPA’s confused about these things. Most of the time, our clients come to us ’cause their CPA is, uh, they’re the wealthiest client, the CPA has, and they’re just like, I’m, I don’t know what you’re even talking about.
So we can work alongside your CPA, bring these strategies, vet them, understand them, execute on them. So. Something to to think about, find a professional. Don’t, don’t do it alone. The worst thing you can do is call for help after you’ve signed the agreement. It just takes a number of opportunities down dramatically.
The best thing you can do is start planning 3, 4, 5 years ahead of time. Uh, so we can create a, a strategy that really wins and brings the capital gains tax down as low as [00:37:00] possible. So hopefully that was worthwhile discussion on, on capital gains tax. Again, I don’t like the government being a silent partner for up to 30% or more of my, my wealth that I’ve generated.
They haven’t done anything. They’re just taking my assets. So let’s bring that number as low as we can possibly get it before I let you go. Don’t forget about Vital Walk. It’s our weekly entrepreneur Bible study happening every Tuesday at 8:30 AM Eastern, seven 30 central. Grab your coffee show up. You don’t have to turn your camera on.
You can just listen along. You can ask questions if you like. Uh, we would love that. Um, it’s a chance to dig into scripture, get encouraged, and connect with other entrepreneurs who want to lead with faith and wisdom. You can either email me atPatrick@vitalwealth.com. Check out the show notes for the link to the Zoom meeting or the recording.
I’d love to see you there. Alright, my friends, that’s going to do it for today’s episode. We’ve covered a lot of ground and I’m really grateful you stuck with me through it. We talked about the one big beautiful bill act, [00:38:00] this massive piece of legislation with all sorts of moving parts around business structure, corporate reinvestment, and estate planning.
Then we roll up our sleeves and dug into capital gains tax. Looking at real world legal and practical ways to keep more of what you’ve worked so hard to build. Whether you’re going through the deferral reduction or charitable giving, um, strategies, or even where you choose to live, there’s opportunities to bring the, the capital gains tax bill down.
I know these topics can feel overwhelming, but please don’t let that stop you from taking action. The worst thing you can do is wait until you’re sitting at the closing table before asking how to protect your money. Planning early is where the wins really happen. If this episode sparks something for you, or if you know someone who’s navigating a similar situation, do me a favor, share this episode with them.
A simple share could save someone millions of dollars in capital gains tax. And hey, if you’re ready to get serious about building out your own custom tax strategy for capital gains income tax, or even estate tax. Don’t wait for tax season to [00:39:00] sneak up on you. Head over to vital strategies.com/tax and connect with our team.
We’ll help you create a proactive plan tailored to your business so you can keep more of what you earn, stay compliant and focused on what you do best. And remember, you’re a vital entrepreneur. You’re vital because you’re the backbone of our economy. Creating opportunities, driving growth, and making an impact.
You’re vital to your family, creating abundance in every aspect of life. You’re vital to me because you’re committed to growth, leading your with purpose and creating something truly great. Thank you for being a part of this incredible community of vital entrepreneurs. I appreciate you and I look forward to having you back here next time.
On the Vital Wealth Strategies Podcast, where we help entrepreneurs minimize their taxes, master wealth, and optimize their lives. Until next time, keep building, keep leading, keep thriving.