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Two things: 1. Personal experience: businesses and products don't always last. Your product that is pulling in great money might last, or it might not. You cou

Two things: 1. Personal experience: businesses and products don't always last. Your product that is pulling in great money might last, or it might not. You could be down to $100k next year, or 50k, or $0. Tech moves fast. You are almost certainly overpaying taxes significantly, say, $50k+ a year. I've had a product that pulled in $100k a year for many years on autopilot, and it just died one year. 2. $50k a year could be invested and compounded annually for many many years. Life isn't about income, it's about net worth. Having a higher net worth is like borrowing years from the future. You don't need to (just) build income, you need to build up net worth and income from different sources. That will allow you to build a new product, or just keep enjoying life once your income stream shuts down. Maybe I'm a jerk for minimising my taxes, but I'd prefer more money in the bank now vs later.

ryanwaggoner 10y ago
Assuming he's deducting expenses, I'd love to hear the magic method that will save him $50k on taxes. Solo 401k is likely the biggest potential savings and that would save (defer actually) less than half that. At his income level, the S-corp salary/distributions split is either risky or not very big. Might save $5k-10k. Any more than that and you're really just asking for an audit.
- charlesdm 10y ago
  I was basing that assumption off of what he wrote in a post above: "I pay about $1.5k/month for colocation and the amortized cost of hardware, and that's the major expense.". He's probably not claiming every deduction he can. I'm not US based, but given he does everything himself there's no reason to assume he has everything optimised. Every country is different, but most tend to have similar tax concepts to some extent. I'm based in Belgium, and if I wouldn't optimise anything on $200k income, I'd be paying close to 50% tax. If you do, you can comfortably get away with legally only paying a fraction of that, say, 15-20%, if not less. His easiest way to save on income tax would probably just be to sell his business / product, so that he can book a capital gain. Capital gains are taxed lower than income. But that isn't exactly an optimisation unless the difference is significant enough. Definitely worth doing if you don't see it growing much from this point though, or if you're bored with it. That capital (for a business doing $225k a year in profit, maybe $500-650k after tax?) can then be reinvested tomorrow in other assets generating capital income, i.e. stocks, which is preferred to income taxable at income tax rates.
  - idlewords 10y ago
    I could save money on taxes by selling my business!? This is brilliant advice!
    - charlesdm 10y ago
      I'm assuming this is sarcasm, but given you wrote "it's been a suspiciously long time since I've done anything at all" it's not actually horrible advice.
      - idlewords 10y ago
        No, it is in fact (and you should treat this as an honor) the worst advice I've ever been given on Hacker News.
        WA 10y ago
        I thought for a while about this comment and I must say, I don't understand why you're so snarky here. The advice is actually not that bad. The assumption is: A mostly unmaintained business has the risk of becoming obsolete rather quickly. Better to have cash in the bank now than a potential income over the span of several years. Furthermore, tax-wise, it is cheaper to sell than to keep the business. The question for every business is probably: Did the business reach its peak (under the current owner) and is it more feasible to sell right now or can it provide your above-a-certain-threshold income for several years to come? The reduced tax rate for capital gains is merely a side effect, but could favor the decision to sell or not to sell in one direction or another. Would you care to elaborate why the advice is so bad?
        samastur 10y ago
        Because your hidden assumption is that business is worth having only if it is keeping you busy or that adding new features might prevent obsolescence. What he has is something that hasn't been taking a lot of his time with a fairly stable customer base of people like me, who pay for the service because what is does is useful enough for me and not because somebody on the other side is working his ass off. It is a widespread belief that you should add features to prevent users either getting bored with your service or to diversify into other groups. What is rarely appreciated is that new features are a cost that may drive current users away when they dilute a product. If you solve a problem well for a large enough group of people, it may be sensible to just step away from the keyboard.
sumedh 10y ago
> and it just died one year. Out of curiosity, what happened?
- charlesdm 10y ago
  It was a niche mobile app (one time sales) that plugged into something larger and the market just shifted into a different direction. Even if I would've kept working on it, it would've died. Looking back, I probably lost $250-300k there that I could've gotten if I would've sold it.

ryanwaggoner 10y ago

Assuming he's deducting expenses, I'd love to hear the magic method that will save him $50k on taxes. Solo 401k is likely the biggest potential savings and that would save (defer actually) less than half that. At his income level, the S-corp salary/distributions split is either risky or not very big. Might save $5k-10k. Any more than that and you're really just asking for an audit.

charlesdm 10y ago
I was basing that assumption off of what he wrote in a post above: "I pay about $1.5k/month for colocation and the amortized cost of hardware, and that's the major expense.". He's probably not claiming every deduction he can. I'm not US based, but given he does everything himself there's no reason to assume he has everything optimised. Every country is different, but most tend to have similar tax concepts to some extent. I'm based in Belgium, and if I wouldn't optimise anything on $200k income, I'd be paying close to 50% tax. If you do, you can comfortably get away with legally only paying a fraction of that, say, 15-20%, if not less. His easiest way to save on income tax would probably just be to sell his business / product, so that he can book a capital gain. Capital gains are taxed lower than income. But that isn't exactly an optimisation unless the difference is significant enough. Definitely worth doing if you don't see it growing much from this point though, or if you're bored with it. That capital (for a business doing $225k a year in profit, maybe $500-650k after tax?) can then be reinvested tomorrow in other assets generating capital income, i.e. stocks, which is preferred to income taxable at income tax rates.
- idlewords 10y ago
  I could save money on taxes by selling my business!? This is brilliant advice!
  - charlesdm 10y ago
    I'm assuming this is sarcasm, but given you wrote "it's been a suspiciously long time since I've done anything at all" it's not actually horrible advice.
    - idlewords 10y ago
      No, it is in fact (and you should treat this as an honor) the worst advice I've ever been given on Hacker News.
      - WA 10y ago
        I thought for a while about this comment and I must say, I don't understand why you're so snarky here. The advice is actually not that bad. The assumption is: A mostly unmaintained business has the risk of becoming obsolete rather quickly. Better to have cash in the bank now than a potential income over the span of several years. Furthermore, tax-wise, it is cheaper to sell than to keep the business. The question for every business is probably: Did the business reach its peak (under the current owner) and is it more feasible to sell right now or can it provide your above-a-certain-threshold income for several years to come? The reduced tax rate for capital gains is merely a side effect, but could favor the decision to sell or not to sell in one direction or another. Would you care to elaborate why the advice is so bad?
        samastur 10y ago
        Because your hidden assumption is that business is worth having only if it is keeping you busy or that adding new features might prevent obsolescence. What he has is something that hasn't been taking a lot of his time with a fairly stable customer base of people like me, who pay for the service because what is does is useful enough for me and not because somebody on the other side is working his ass off. It is a widespread belief that you should add features to prevent users either getting bored with your service or to diversify into other groups. What is rarely appreciated is that new features are a cost that may drive current users away when they dilute a product. If you solve a problem well for a large enough group of people, it may be sensible to just step away from the keyboard.

sumedh 10y ago

> and it just died one year. Out of curiosity, what happened?

charlesdm 10y ago
It was a niche mobile app (one time sales) that plugged into something larger and the market just shifted into a different direction. Even if I would've kept working on it, it would've died. Looking back, I probably lost $250-300k there that I could've gotten if I would've sold it.