The Proven legal $10 Million Tax Free Exit Strategy - Garrett Gunderson

Proven Podcast

Garrett Gunderson reveals tax-free exit strategies for business owners using legal structures like C-corps and Section 1202, emphasizing proactive financial planning over reactive tax filing. He highlights overlooked deductions, entity selection, and the importance of a specialized team. The episode covers real-world tax optimization and wealth-building frameworks.

Key takeaways

• C-corps enable up to $15M tax-free exits after 5 years
• Section 199A offers 20% business income deduction
• Home offices and 14-day rentals are underused deductions

Transcript preview

Welcome to the Proven Podcast, where it doesn't matter what you think, only what you can prove. Our guest today is Garrett Gunderson, a financial entrepreneur, author, and wealth strategist who has helped thousands of business owners create lasting prosperity by focusing on cash flow, efficiency, and economic independence. Garrett has proven that true wealth isn't built by sacrificing your life. It's built by maximizing your value and keeping more of what you earn. The show starts now. I'm excited that you came on back, man. Thank you. Thanks for me back, man. Appreciate it. So the first episode, it was really kind of felt like you and I would just sit around having a coffee talking back and forth about life, liberty and what it's like to be an entrepreneur. There's so much more to you and what you do. You're one of the leading individuals that I know on financial advice and financial expertise. I really wanted to kind of unlock that you're And I feel like entrepreneurs don't know so much about tax. It's amazing, right? Because they get like a, they get a CPA or an enrolled agent and they're like, oh, I got a tax strategy. Just know you got yourself a historian. They're going to tell you what you owe after the fact. And there's going to be so many things directly in the tax code that they're going to make you feel like, well, I don't know if I should do that. That sounds risky that. That sounds risky that's coordinated with the strategy with the accountants, you're missing out because the type of corporation you choose is massive. For example, if someone's a C corporation that's been in operation for at least three years, when they sell, they could sell for up to seven and a half million dollars tax-free using section 1202 and if they've been in business for five years, that's 15 million dollars tax-free, that's 15 million dollars tax-free per partner. And yet if you didn't select the right entity, you might not have that tax advantage, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right and maybe a CPA is not looking at that they're just going hey I need to file these taxes and worst case you talk to him at the you know next year for the previous year and their only strategies usually to delay tax and delaying tax and saving tax are completely different things so really there's this easy framework number one you got to have the right team so just timely data you know I don't care if it's a CFO because you're an established company a controller or a bookkeeper you just got to have the timely data because if you're talking Second is you need the strategist that helps you maximize tax deductions. So deductions is kind of the second category. The third category is you have to have an attorney. Now if you're under a million dollars revenue, a corporate attorney is fine, but when you get above that mark you want a tax attorney. And they're responsible for how you classify your income, which is a game changer. And then finally, if you own real estate, you want an engineer, specifically a cost segregation, if you're in real estate now that gives a major windfalls of like, now to a degree that could be a deferral because if you just sell it out right you have to recapture it but I could have you borrow against real estate not pay tax roll it over to another piece of real estate not pay tax or do a charitable trust where you donate the real estate to a charity then sell it tax-free and you get a lifetime income while you're alive off of that trust the charity just keeps at least 10% of what's left over rather pay the charity 10% than the government 20% personally so that's the government 20% relate to my business, and if you're not sure, meet with your tax team, right? And that's either a tax attorney or tax strategy. And man, Charles, I feel like the best tax strategists are actually financial people, not CPA's. CPA's are trained to file taxes. You want them, they're essential. They keep you compliant, but to expect them to be proactive when they're mostly reactive, they're filing 800 to 1,000 filings a year. It almost becomes a commodity. You need some of the big picture, works together and helps you navigate it. Now the better tax deductions or the better like you know category here is things like section 199A. That's a 20% deduction off the top. Then you only pay tax on what's left over as a business owner. That's one thing that a lot of business owners miss. It's been out for several years now. 280G which is you can rent your home out for 14 days to your business, write it off in the business because you're using it for business purpose and then not claim it is personal income. 14 days of tax deduction, most people miss. Maybe they had a team retreat. Maybe they were filming. There's a number of things. I know you don't just let anyone over to your house, but you know you might decide, hey, you want to film in other rooms and just what you're in now. Another tax strategy, everyone should know, but I don't know why everyone doesn't take advantage of it, just having a home office. You get to write that off. It's a percentage of utilities, all that kind of stuff, that's, to the kid and you still control that money. There's so many strategies like that that people just aren't doing that I would consider extraordinarily basic. But one that I've had argument against is this thing called 132J. We happen to have an indoor pool. We have a sonna, as you know, I have a cold plunge, you know, I have a gym. So all the maintenance towards that if I make it available to my employees becomes a write-off, the maintenance does. Well guess what? I have employees called my kids in one of my companies, so I make it is a right off. Some people might feel like that's aggressive. It's just within the law. Now I know some people that might say, oh, I'm going to make it available by my employees. They don't make it available to all their employees. That's the problem. It's a specific company that's only got my family inside of it that make that available. So like these aren't the game-changing things in tax deductions, but there's a lot that's missed there. The better strategy is if you're a business from the business. That way if you have partnerships or that way you know if you have other people involved like employees you're not just stripping that business to pay for everything that you want you're taking money into your family company and then taking your right offs there because that family company doesn't have value in the marketplace or the existing business does and a lot of wealthy families do that so I'll pause here for a second before I get to the big ones which is how to classify. So I want to reverse all the big ones versus an S-Corps and all of that, when you're running into this and you have someone who doesn't have this experience and has been working with the CPA instead of someone who's a strategist and really understands this is a true financial guy, how do you pivot out of that? How do you switch your company from like, hey, I'm an S-cor, I probably should be a C-corp because I'm gonna sell and it's gonna be this exit and it's gonna be this either multiplier, blah, blah, is there a little bit? Well the clock won't start ticking until it's a C Corp. So you just you know if you if you just start a new C Corp if you convert your S Corp if you're an LLC it's a very easy because an LLC can do an S election or a C election so you just change the election of how you how you tax that and become a C corporation right so that would be suffice if you're an S Corp you're gonna have to convert it to a C Corp or make that change right or start something new and then maybe have that relationship with that relationship with the business. a number of things we'd have to kind of consider to figure out what to do and I bring an attorney in to do that. So it's not that it's an impossible thing, it's just that's when the clock starts taking thing. You can't reverse the clock. It's not like, hey, I've had this company for 30 years and I just made it a C Corp. They don't care. This is now going to be treated as a new entity after three. So they have shortened it, you know, it limits it to seven and a half million total benefit after three years where it's 15 million after five and there are some there are some exclusions certain companies wouldn't it wouldn't exist so you have to make sure you're in the category the type of company that would work for we've had you know we've had companies sell and 70 million dollars tax-free because spouse is an owner kids have small ownership trust is an owner and the main individual is an owner so where you know there's a lot of tax benefit through that and you know and you know and you know and you know an LLC you know and So one of the worst things I see is I see a lot of partnerships in an S-corp. S-corps are very frigid, they're very inflexible. And so I've seen businesses do huge numbers with an S-corp, but I'm like, wow, you're definitely, first off, overpaying tax and undervaluing the value of the business because the C-corp gives you different share classes if you ever raising capital, it lets you retain earnings so you don't have to pay tax. you out. And by the way interestingly if you have a C Corp and an LLC or an S Corp do a small amount of revenue the C Corp is going to pay less tax on a smaller amount of revenue than an LLC or an S Corp because those pass through to someone individually. So S Corp too inflexible LLC much more flexible C Corp you know it's just a there's a little bit more onerous in managing it. So a lot of businesses are LLCs that's the most popular one it. It's just a little bit more. There's a little bit more on like holding intellectual property in a C Corp or holding a piece of that business in a C Corp. So there is an option that they can have an exit and get some tax benefit and also retain earnings and maybe even have a medical reimbursement account which you can't have in an LLC or an S-corp from a tax advantage standpoint. There's a lot of stuff right now about the variety of where you form your organization, either the Cook Islands or Delaware or Wyoming or all these different things. When you're going down this bout and you're having professional financial advice, solely focus on the future of your finances. Where do you tell people to kind of form their corp? So there's the formation of the corporation, which if you're going to do offshore like Cook Islands or Nevis, that's because you're moving probably towards an asset protection trust internationally. And then what happens with that is yes, you will protect your assets for sure. And you'll also make it a little bit harder to access that money at the same time. And I think it was like 2013. the US was like, hey, we're seeing too much money go overseas. We'd like to keep some of that money here, so they set up a domestic asset protecting trust. Doesn't have the same precedent where we could see for decades that, you know, they're nearly impossible to penetrate and people haven't got into them. They just don't have as much, you know, data because they're newer. But they were essentially like, well Charles, why don't you set up here domestically? We'll give you a provision that says you can choose your distribution trustee, so you still own does, but you can have access to that if the distribution trustee says, yes, now you might have a distribution trustee that you go sideways with, you can fire them and hire someone new. So it's still arm's length, own nothing, control everything. Those types of things like a domestic asset protection trust, the state matters heavily because some states, it takes six months before now it's irrevocable and nobody can get to it, including creditors, and some states take three years, right? So it might just take a lot longer if you're states Alaska was a big one early on but they take longer than Nevada. You know it seems like Nevada and Wyoming are really popular but they're still taking longer than Utah. The problem of Utah is you now have to make a you have to make a public declaration that you've set this up in some type of trade publication so your creditors have a chance to come and look at it and it's a little bit more inflexible of changing trustees and stuff like that than Wyoming and Nevada. Wyoming and decided we want to make this easy because we want more coming to us. You know. You're agents, they've got entities set up where you have addresses and all that kind of stuff. So those are what I see as kind of the two most popular, although back in the day, as you know, Delaware was the king of C-corps way back in the day. It's not quite as much because we've just seen, you know, we know where people aren't going to go is California, right? People aren't going to incorporate in California and deal with those kind of laws and the kind of issues that might be, you know, it's more like your asset protection than your corporation. where it's set up in, you just got to look at like some states have pretty unfavorable laws to businesses and that's why you want to be careful about that. And just because you're in a certain state and you set up a corporation somewhere else, you're still paying the state tax from the state you're in. You're just abiding by the legal structure where you set up the legal structure and the rules that they have, right? So who has better protections, who support you or has easier set up and has, you know, things like that. But then even if we get the third dimension here, we have an asset protection trust which is what we're talking about and corporations but there's also perpetual trust people go to South Dakota because it's perpetual you can keep that going forever where Nevada eventually after a certain number of generations dissolves the trust so you know that's another delay is like what if you want this to go from generation generation versus just what's best now so it sounds a little bit complicated but that's why you want to have a good attorney they just kind of know what's going on and you know what's going on and you know use AI to figure some of this out, but we know that AI likes to make some stuff up. So, you know. Well, I think it's in the name of AI. AI by itself is in artificial intelligence. It's always incorrect. It's just always incorrect. It's just always incorrect. It's just always incorrect. It's just always incorrect. You have to deal with that and embrace that. Speaking about being always incorrect, what are the things that people just blatant things that you hear all the things that, category which is reclassification. These are the four things. Number one, you want more passive income for tax purpose than active income. Active income like W2 as the