QSBS & Chill

QSBS & Chill

Stop getting raked over the taxation coals every year. On the heels of Tax Day many of us are feeling like we paid far more than "our fair share." The types and forms of taxation in America are now legion, often leaving smart, hard-working business owners in the lurch as Tax Day approaches to round up taxes due, taxes to withhold, and taxes to anticipate. Fear not faithful readers of ILAF, we have a solution for you: Set your family up for generational wealth by harnessing QSBS!

Colloquially known as Qualified Small Business Stock (abbreviated QSBS) is rocket fuel for creating dynastic family wealth. QSBS allows founders and investors to exclude up to 100% of federal capital gains tax up to $15M or 10X basis, whatever is larger, of said stock held for over five years.

Ever wonder why the PayPal Mafia, and their descendants like Sam Altman and Dario & Daniela Amodei plus a host of others live so well with seemingly endless buckets of cash, the best real estate, the best medical care, the finest luxuries, and fly private wherever the go? Life is very sweet indeed when you do not pay taxes on massive capital gains.

Now QSBS is different than the Peter Thiel strategy of putting founders shares in a Roth IRA at $0.0001 each, ie putting 20,000,000 shares of Facebook (now Meta) in an account for $2000. That also works, obviously, but requires some specialized access along with lack of control of said company.

Qualifying for QSBS riches is relatively easy, and probably the greatest way to create dynastic family wealth that ever existed. As of July 4th, 2025 to qualify for QSBS the issuer (ie the company you invest in or start)  must be a domestic C-Corp with less than $75M in gross assets and the shares must be acquired at original issuance (ie not on a secondary market.)

Now there are some key requirements to keep in mind, and it would behoove you to meet with a tax professional to line up your ducks.  A couple initial considerations include the holding period, which is 5 years for the full 100% federal tax exemption, although there is a sliding scale for less than 5 years. 

As discussed above, the shares need to be obtained directly from the company and not via a secondary market. Also, the "asset test" as of July 4th, 2025 under the "Big Beautiful Bill" was upped from $50M to $75M, which should be plenty large for almost any "small" business.

One of the most tricky parts of the QSBS is the actual "Q"...what qualifies as a "Qualified Business?" As you can imagine this section of the tax code (Section 12002) was written for and by the previously mentioned PayPay Mafia types for themselves. Why does that matter? Well there are some very, very valuable businesses that are explicitly excluded. Business and professions that are extremely useful to humanity including health, law, and financial SERVICES. Banking, Farming, Mining and Hospitality are also specifically EXCLUDED.

This kind of leads us to ask the question, "What businesses then actually ARE included in the QSBS carve-out?" Answer: "Those businesses that create value through products or inventory rather than primarily providing services based on employee expertise."

A little foggy? You betcha! Think along the lines of manufacturing, but both physical AND software goods (yes of course AI Agents are included...who do you think wrote this tax language? Hahaha)

Specific examples of QBs include: Technology & SaaS, Manufacturing, Manufacturing & Consumer Goods, Technology-Enabled Services, Retail/Wholesale, Research & Development.

Some complexity aside, creating the right structure and business model can potentially result in massive tax savings as many business owners with QSBS "stack" this stock amongst family members, trusts, and friends as the $15M capital gains exclusion is PER PERSON. So just when you think things can't get any better under an ideal QSBS scenario, the founder(s) stack company stock with their spouse, children, and trust(s) and things do indeed get better!

If you are tired of being jerked around by a fickle tax code and seeing your tax dollars squandered away by government agencies left and right while you are grinding out hour after hour of work, consider taking advantage of Section 1202 and set your family up for generational wealth via massive tax savings.

Legitimate Income

Legitimate Income

Legitimate income is expensive. Successful earners lose more than half of every dollar they earn. Learn how to legally keep more of what you earn. Play by the rules, but control the terms.

Much of what is earned as income comes from the creation of value, with more value created typically resulting in higher income derived. Insanely great value creation can generate insanely high income. That is generally pitched as the "American Dream" or at the least the goal...to EARN a high income. The reality as you quickly learn along the way to high income is that at first some, then more, then most of that income is taken from you. It is "redistributed" via progressive taxation.

The tax code is what it is; attempting to skirt or even worse deliberately running afoul of it has serious consequences. Yes there are thousands of people out there that never file tax returns and never pay income taxes. Many will never be caught. But the risks are severe, especially if you value your freedom.

Sadly, every American is born into serfdom as an indentured servant now, one way or another, with a Federal Deficit of nearly $40 Trillion Dollars as of April 2026. It is what it is; prior generations have overspent and saddled the next generation with even more debt. The debt compounds. The value of the dollar decreases. Taxation increases. This is the hand modern earners and investors have been dealt.

We have two choices: Feed the beast and relinquish more and more of your earnings, wealth, and soul to government that only grows in size and scope yearly OR become resilient. Keep reading if you would like to become resilient.

After decades of earning, building, and paying taxes (routinely to the point of extinction) some truths have become self-evident. First, to earn a decent living you need to create some level of value on a recurring basis, whether that is a service or physical good or a hybrid therein does not matter. Second, there are generally barriers to entry for the higher income professions; some are academic, some are skill, and some are family connections. To ascend the "value chain" of potential earnings and wealth one needs to leverage their own particular ambitions and skill sets. These first two variables we all have in common. The third variable is a conscious decision to become resilient.

Generally speaking, the greatest way, and by that it is meant the surest, fastest, safest way, to lasting wealth creation is to embrace a value creation and ownership mindset that is singularly focused on creating extreme value to sell, regardless of profession or industry. HOW that value is sold is critical.

To preserve and grow wealth it is vital not to LOSE some 50% of it each year to taxation. Taxation takes many forms; for our purposes it specifically relates to the Federal Income Tax, State Income Tax, Local & Municipal Taxes, Self-Employment Tax (as applicable), Social Security Tax, Sales Tax, Real Estate Taxes, Affordable Care Act Tax, and the additional associated costs of Medical Insurance & Education which most high earners pay out of pocket which act as additional taxes. All those taxes provide significant drag to advancement in life...like running a marathon with a parachute on your back that grows larger with each mile run!

Here at ILAF we like to tell it to you straight. If you want to achieve markedly higher wealth, consider implementing the following strategy ASAP: However you decide to create extreme value and sell it, consider doing it within your own company. Extract the minimum income needed to pay for your living expenses outside the business. Some would advise earning enough to contribute to a 401k, SEP, IRA, etc. The upside is you are creating tax-free or tax-deferred retirement savings, but you are also creating "tax bombs" that will be large liabilities down the road (except for your tax-free Roths.) Conventional wisdom suggests paying out value in the terms of income and then using a chunk of that income to build retirement savings. A more recent approach pioneered by the authors of the largest tax break in existence is to SELL your business every 5 years under the QSBS rules.

In every time and every generation in America there is a profession that has preferential status; ie the tax code bends its knee to that sector. For the first 150 years of America it was the farmer, rancher, and miner. Next came the oil man and manufacturer. Then we saw the rise of the professional class; lawyers, doctors, and engineers. Now the country is lopsided to the service sector and corporate behemoths. Most recently though, the rise of AI has resulted in small teams creating vast wealth (for themselves and early investors) via the promise of creating insanely great value.

We all need to press our respective EDGE. Not everyone is an AI vibe-coder, but every profession and career has its distinct advantages and disadvantages. Almost all forms of work offer a "best case" scenario where you can harness the power of the tax code to your advantage. Consider your skill sets and value proposition in the creation your own personal "Edge Fund."

It is hard to get ahead and create wealth when that yearly nut gets nibbled on by every tax squirrel in the forest. Look to store and secure your nuts. Take what you need to survive, but consider strategically selling your stash only when needed...and when advantageous to you and your family. Play by the rules, but control the terms.

Tax Day

Tax Day

"Tax Day," typically the 15th of April every year since 1955, is the day where that most odorous of civic duties compels citizens, residents, and even those Americans living far abroad to offer "their fair share" of taxation to the municipal, state, and federal governments.

For those who pay, I salute you. The annual redistribution of income, wealth, and labor should be recognized as the blight it has become on the growth of this nation; economically, socially and morally by the establishment of a National Holiday.

The flag should be flown at half staff on Tax Day to recognize the continuing sacrifice millions of taxpayers make to their government(s) annually. Sadly, this sacrifice is largely wasted by that very government. Fraud, waste, and abuse have been well-documented at every level of government and continue largely unabated daily. By some estimates, nearly 80 cents of every dollar is wasted.

The Founding Fathers were geniuses...they knew government would ultimately grow to become both uncontrollable...and unaccountable. The U.S. Constitution was specially written NOT to have income taxes. Indeed, an argument can be made America was born of resistance to taxation. Yet there is no creature more oft-maligned than your everyday taxpayer.

The everyday taxpayer goes to the back of the line, every time. Some 250 years ago this country began with NO income taxes at any level and seemed to do just fine, but government itself was hungry for the wealth and power the people had accumulated and so the cycle began again...this time cloaked under "fairness."

In 1913 everything started unraveling with the passage of the 16th Amendment which was an answer to the lowering of tariffs. Prior to this legislation, America ran on tariffs. Goods were taxed and consumers ultimately paid these taxes based on their consumption of said goods. Nobody was forced to buy certain goods or services, like say healthcare.

The 16th Amendment, however, changed everything; now a person would be taxed on BOTH their consumption of goods (tariffs did not go away completely) AND how much INCOME they derived on an annual basis.

"Progressive" Democrats at the time sold this to their constituents as perhaps the first instance of "tax the rich." It would not be the last, and it ultimately failed as every other attempt has, but not before the 16th Amendment shackled millions of Americans to a new form of economic slavery.

Initially pitched as "only 1% of people will be affected," the new income tax spread like wildfire from the Federal level, to the State level, ultimately to the municipal level. This obscene cash gusher was the beginning of the end for low-friction growth. Insidious like a cancer, and just as malignant, the income tax spread both horizontally and vertically across every part of the body of society.

In 1913 the original plan was to apply a 1% federal tax on all incomes over $3K (or $4K married.) A graduated scale rose to a maximum marginal tax of 7% on incomes overs $500K. There were no State taxes at this point. And taxes were paid annually. Consider what this has become over the next 100+ years.

First, vertical layers of taxation were added: local/municipal taxes, State taxes, and Federal taxes. Next taxation expanded horizontally like a locust plague...licenses, sales tax, usage tax, gas tax, water tax, etc. ad infinitum. Of course the brackets themselves expanded to capture nearly everyone. Remember, $3,000 in income in 1913 is equivalent to $300,000 today. So imagine everyone today making $300,000 (or $400,000 married) having ZERO income tax at either the Federal or State level!

Finally, the SPEED of taxation increased to zero. Zero? Correct! What once was paid annually in arrears, is now paid instantly at the point of sale. Who says the government is not efficient? They have compressed time to zero! That is just how far we have "progressed."

And the rates themselves? 1% is long gone. The lowest rate is now 10%. That's right, 10X the original lowest RATE! The moment someone starts to make a little bit more money their silent partner is also making a LOT more. The Federal Tax rate now peaks at 37% for those making over $626,000 (married.) Then add in State taxes, with California topping out at 13%. Add in local/muni taxes, sales taxes, gas taxes, etc. and high earners can easily drop 60% of their income to taxation.

What does all of this taxation support? Sadly, larger and larger government that wastes more and more of your money. The problem is that the taxpayer does not have a champion. Congress is tasked with SPENDING our money so it is pointless to approach them. The Executive Branch is the beneficiary of the spending and the Judicial Branch enforces the spending via "interpretation" (read Obamacare.) 

What can the average taxpayer do? Nothing. What can the savvy taxpayer do? Become an expert on the tax code to maximize your situation. There is a reason why the rich hire teams of CPAs. You may not need a team, but becoming knowledgeable on the tax code, geography, and strategy can help immensely.

For most, the "shakedown" will continue for a lifetime, and beyond if you do really well. Careful planning and execution can help sharpen the blade so the various immortal government entities cut off only what they are legally entitled to and not an ounce more. Sadly, after 250 years we have become a nation of taxation without representation. Happy Tax Day.

Happy 50th Birthday Apple!

Happy 50th Birthday Apple!

Happy 50th Birthday Apple! 50 years ago today (no joke!) Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne. Apple seed capital was largely raised from Jobs selling his VW Bus and Woz selling his HP-65 calculator. With those proceeds they built a prototype of the Apple I.

The Apple I "computer" consisted of a motherboard with CPU, Radom Access Memory (4 KB), and textual-video chips. No monitor was included. There was a wooden box to hold the system. This product was first demo'd at a local computer club. Who would have thought that from that initial product launch that not even the sky was the limit?

Over the next 50 years via legendary innovation, design, and marketing Apple became the world's most valuable consumer electronics company. In many respects, Apple redefined society, work and leisure became one. Mobile work has become ubiquitous. Jobs succeeded in his goal of "putting a dent in the universe." And Apple investors? Well $10,000 invested in the company's IPO in 1982 would be worth roughly $33,000,000 today.