The Dark Side of Financial Abundance (Blog)

[Savage]

Use this thread to discuss the following entry from Steve Pavlina's blog:

The Dark Side of Financial Abundance

[TheColonel]

Nice entry. It's interesting to watch someone develop into their success. What they think about, what new problems they face, etc.

In real life (off the internet), you only get to see the surface level transformations when somebody starts to succeed financially. Very cool to read about it in detail as it's happening..

[Lauxa]

I have heard that if you own an LLC that it's better to take dividends than to become your own employee. Or to employ yourself to the extent that it is legal necessity (minimum wage?) and then to take dividends to cover the rest of your expenses. The reason being that you have to pay employment taxes on any money that you pay to an employee. Are you going to be using this strategy at all?

[patrick24601]

Steve,

As another self employed person I am curious as a general sense what you are self employed in. And I am also curious as to why a C corp and not an S corp. I am going to go back and read the blog post but I didn't think I saw that in there.

For accounting purposes may I also suggest that you get Quickbooks online, and set up an ID for your accountant to use. For years I have used the desktop based version of QB and I have to ship it to my accountant each month. Now that I have the online version we can collaborate and see each others changes real time. It is a lifesaver.

Keep up the good work and congrats on the "expansion".

Patrick
Stop Doing Nothing

[Jill]

The key in what Steve is saying, imo, is that you'll have more money, so you can spend some of it hiring the appropriate experts to make sure you're doing it all right.

I think one of the most important things about business and financial growth is to remember to not be afraid of spending money where necessary. If you hire the right people and consultants, they will pay for themselves many times over.

[eternomi]

Originally Posted by Lauxa

I have heard that if you own an LLC that it's better to take dividends than to become your own employee. Or to employ yourself to the extent that it is legal necessity (minimum wage?) and then to take dividends to cover the rest of your expenses. The reason being that you have to pay employment taxes on any money that you pay to an employee. Are you going to be using this strategy at all?

Dividends are subject to double-taxation (company pays taxes on its revenue, and then you pay tax on the dividends that you receive from the company). This is why most young companies do not pay dividends.

[eternomi]

Steve,

You could also write a book based on your decades worth of business experience. I am sure what you learned is very valuable to many others. This isn't exactly on the "personal development" path per se, but not too far from it either.

I am also happy to see the last two blog posts on becoming a millionaire since it looked like LoA was on its way to create a whole new generation of couch potatoes.

[srockrae]

Good posts.

Another positive or negative depending on the situation is that many people see you as an obvious source of financing their projects or bailing them out of a mess.

Also, I would be careful with a C Corporation election. You are double taxed when you take money out of the Company and when you sell it you have to pay taxes on deferred earnings (i.e. Earnings and Profits). This structure is not typical for small businesses and like Steve said I would definitely seek professional advice.

[The Wise Turtle]

Great information about taxes and business structure! I guess I always knew that if I ever had enough money for the government to care about, I would hire the funky, artistic, progressive tax preparer that a friend of mine uses. I even carry her business card around in my wallet!

Maybe the world could really use a nonprofit organization to help people who want to start socially beneficial businesses and nonprofits manage them in the most effective ways, and navigate the stormy seas of the IRS's forms and processes. At least the basics could be offered for free, and the individual accounting would be offered for a fee.

Maybe this kind of service is already available somewhere? Maybe, if there is one, you could advertise it on your blog...

Oh, and congrats on getting a "real job"! :-)

Peace, Love, and Bicycles,
Turtle

[Baltar]

Originally Posted by patrick24601

I am also curious as to why a C corp and not an S corp. I am going to go back and read the blog post but I didn't think I saw that in there.

It's not a C corp or S corp, it's an LLC but he chose for it to be taxed as a C corp. LLC's pass-through income taxation seems to be the same thing as how an S corp gets taxed. As a C corp though, money that stays in the business account is subject to a corporate tax and doesn't count as part of his income. The advantage here as I understand it is that you don't pay social security, medicare, and any other self employment taxes on the money that stays in the company.

Originally Posted by Lauxa

I have heard that if you own an LLC that it's better to take dividends than to become your own employee. Or to employ yourself to the extent that it is legal necessity (minimum wage?) and then to take dividends to cover the rest of your expenses. The reason being that you have to pay employment taxes on any money that you pay to an employee.

I don't know much about dividend taxation, but becoming an employee of your company is actually a good idea. Though it can probably only be done if your income is not pass-through, meaning that the company is taxed as a corporation. This way your company pays half your medicare, social security tax, etc. which is actually a good thing in general because these costs along with your salary can be counted as a company expense, thereby reducing the income tax your company pays. Unfortunately this creates lots of extra paperwork not only for tax returns but also for payroll.. But it sounds like Steve can easily afford as many CPAs and lawyers as he needs.

[SuccessPundit]

Nice entry, Steve. It's rare for the wealthier among us to give an objective perspective on the downside of success.

I'm curious about one thing though. Have you noticed the "dark side" creeping into you as well?

The reason I ask is, in my experience, the largest pitfalls are internal, not external. For example, I've fought against:

1) Haughtiness: Thinking I am better or know better than everyone else because I'm closer to my objectives than they are.

2) Greed: Thinking I deserve a larger portion of the pie, when in reality, no one "deserves" to earn such large amounts of money.

3) Overconfidence: Taking inappropriate risks because I think that I can handle anything.

4) Depression: Feeling a lack of purpose because I'd accomplished everything that I possibly wanted.

I've had to beat each of those one or more times in my career, with varying degrees of difficulty. If you haven't faced them yet, stay on the lookout. Each has the ability to destroy your career.

[Savage]

Originally Posted by SuccessPundit

1) Haughtiness: Thinking I am better or know better than everyone else because I'm closer to my objectives than they are.

That's a symptom of the world view that says we're all separate. It can't be maintained under the view that we're all part of the same whole. Is the heart superior to the lungs?

Ultimately your world view is a choice.

2) Greed: Thinking I deserve a larger portion of the pie, when in reality, no one "deserves" to earn such large amounts of money.

The pie is infinite because human creativity is constantly expanding it. If your aim is to withdraw one "slice" for every two you contribute, then be the greediest person you can be, and we'll all benefit from it.

You deserve whatever you give.

3) Overconfidence: Taking inappropriate risks because I think that I can handle anything.

Time and experience resolve this problem soon enough. Underconfidence is the greater risk for most people. Testing the limits of your confidence isn't such a bad thing, especially when the worst-case outcome is just embarrassment.

4) Depression: Feeling a lack of purpose because I'd accomplished everything that I possibly wanted.

Set a bigger purpose, one that's worthy of the real you, one that would take a lifetime to put a dent into. Mine is to inject the spirit of lifelong conscious growth into every family on earth. Please let me know when I'm done.

[Liara Covert]

I really like the idea Steve mentioned to each of us about how we have the power to evolve into a lifelong purpose worthy of each of us as individuals. I believe purpose evolves inside us according to personal growth, according to how well we get-to-know ourselves, and how effectively we are contributing to people's lives and meaningful events beyond us. I sense my purpose evolves differently based on my life phases (age, health, intentions, relationships), my desire to empower others, based on how rewarding my risk-taking ventures are, as well as on how I deepen my faith in the unknown

[pavlov]

Steve,

Why not just do an LLC and count your retained income in your business account as personal income for the year? Current tax rates would appear to favor individual's rates rather than corporate rates:

Individual rates:
$0 to $15,100 rate is 10%
15,100 to $61,300 rate is 15%
$61,300 to $123,700 rate is 25%
$123,700 to 188,450 rate is 28%
$188,450 to $336,550 rate is 33%
over $336.550 rate is 35%

Corporate rates:
$0 to $50,000 rate is 15%
$50,000 to $75,00 rate is 25%
$75,000 to $100,000 rate is 34%
$100,000 to $335,000 rate is 39%
$335,000 to $10,000,000 rate is 34%
$10,000,000 to $15,000,000 rate is 35%
$15,000,000 to $18,333,333 rate is 38%
over $18,333,333 rate is 35%

[Savage]

Do the math. Suppose you earn $400K net. See what happens to your total tax when you leave even $50K of it in the business. Better to have some income taxed at the lower corporate brackets that pouring more into the 35% personal tax bracket.