Use an LLC for any asset that could generate long term capital gains.
Use a C-corp with base salary for everything else as long as it can produce more income than your salary.
LLC taxed at your rate...
C-corp taxes at 21%...
So if you generate a lot of revenue in an LLC you will be taxed at 30% effective rate!!
Let your LLC wholly own the C-corp. LLC can then borrow against Bitcoin or other assets and loan cash to C-corp. LLC can deduct loan interest as long as loan is an investment... so loan to c-corp with fair interest rate. LLC pays tax on interest payment, but now the loan is fully deductible by the LLC and interest payment by the C-corp.
C-corp deducts your salary, interst payments, health insurance, gym membership, etc etc. Then it only pays 21% tax in the remainder..allowing your business to grow much faster with less tax drag.
Downside? You gotta keep clean books and pay 2 corporate filing fees..
Anything I'm missing here?
Replies (6)
Transferring assets to the LLC is a taxable event, individual contributing must pay the capital gains of the assets at that point. How do you kickstart this process without getting your arse kicked…
Also, just saw that Strike is now allowing you to take collateral off the table. If LTV is under 40% you can drag it back up to 60%. Any thoughts on using that capability or just waiting to roll the loan at term.
I’m struggling to make a comparison of whether or not I should be paying down the loan or not.
Not taxable for a single member LLC. The LLC is basically an extension of you. I also loaned it to the LLC at fair market value repayable in Bitcoin or cash. This effectively let's me get the cash back out tax free leaving the LLC the Bitcoin to borrow against and fly wheel indefinitly. Plus LLC received the Bitcoin at my cost basis and could sell at long term capital gains rates if it wanted too..
Say you donate 1M worth of Bitcoin to your LLC. The first 1M you take back out is simply a return of capital.
There is basically zero issue doing this for a single member LLC. Its a different story for a C-corp but still not impossible to do a capital contribution, but you then lose all LTCG benefits and simple pay corporate tax rates.
The main issue with my original post is PHC rules for passive income as a C-corp.. but that part is separate from LLC and Bitcoin.
Still a benefit for deductions like health insurance but you effectively have to return all profits... strangely if you trade options yourself you can avoid this....but if you use a covered call ETF you effectively pay 49% tax!!!!
Us tax law is complex AF! For sure make AI show you relevant tax codes if you use it to brainstorm.
Roll the loan or not... My simulations always favor rolling loan and keeping the debt.
Not sure I like that idea into an extended bear market though. I will be paying down debt in mid to late cycle. Then
increasing debt after larger pull backs. Always staying below 10%LTV for now.
I belief the moment you donate that first 1M to the LLC you have to realize the capital gain as an individual based on whatever your cost basis was .
Not true my friend. Not for single member LLCs. As far as the IRS is concerned me and Base Layer Capital LLC are the same person for taxes.
Legally we are separate entities but tax wise we are the same. The loans I made? Irrelevant for the LLC, but done in case it was converted to C-Corp later. The entire LLC flows straight through to my personal taxes.
I was very concerned about this as well and I have confirmed with a human CPA this is accurate.
If it was multimember or partnership it would absolutely be taxable and this why we went single member route.
