Build Your Empire Course
Chapter 7

Tax Armor

Complete & Continue Next Lesson Learn More

CHAPTER 7: Tax Armor - Zero-Tax Legacy

Why This Chapter Matters

Your empire is built to keep cash, not give it away. Most businesses pay tax twice — once at the company and once when you pull it out. We pay once at 21%, then compound forever. Here’s how.

1) Retain Earnings (Keep $250K Tax-Free)

  • Pay 21% flat corporate tax on profits (Form 1120).
  • Keep up to $250,000 inside the C-Corp — no personal tax.
  • Reinvest in growth, equipment, or new ventures.
QuickBooks Entry 
Dr Income Tax Expense     $XX
Cr Income Tax Payable     $XX

2) Pay Yourself with Qualified Dividends

  • Board declares dividends from after-tax profits.
  • The Family Dynasty Trust receives them at 0–20% capital gains rate (not 37% ordinary income).
  • No self-employment tax is applied to qualified dividends.
Board Resolution (Sample) 
Resolved: The board authorizes a qualified dividend payment of $XX to the Family Dynasty Trust, drawn from retained earnings.
QuickBooks Entry 
Dr Retained Earnings
Cr Dividends Payable

*Note: Many clients operate from Wyoming, a closed-corporation state that requires less formal documentation. A simple signed resolution or digital approval log is sufficient for most cases. In stricter states like North Carolina, maintain physical or digital board minutes and approvals for compliance.*

3) Intercompany Deductions = Legal Tax Shields

Flow Deductible To Taxable To IRS Code
Operating → Parent (management fees) Yes Yes (Parent) §162
Operating → Captive (insurance premiums) Yes Tax-deferred §831(b)
Nonprofit → Operating (service contracts) Yes Yes (Operating) §162
Automation Flow Example: Client payment → Operating Company bank → Automatic invoice triggers Parent management fee through monthly automation.

4) W-2 Income & Deferred Payment Strategy

  • Establish a consistent W-2 salary to strengthen personal creditworthiness and loan approval potential.
  • Maintain W-2 documentation for credibility with lenders and underwriters.
  • Leverage deferred compensation to control the timing of income recognition.
  • Balance salary, dividends, and bonuses to create tax efficiency while maintaining financial stability.

This hybrid model helps qualify for higher credit lines and lending tiers while keeping taxable exposure optimized.

5) REIT Dividend Optimization

  • Real estate investment entities distribute at least 90% of income as dividends.
  • The parent company receives a 50% dividends-received deduction (DRD), lowering effective tax to about 10.5%.

6) Family Office Loans

  • The Family Dynasty Trust lends capital to the Family Office at a 4–6% interest rate (based on current AFR).
  • Interest is deductible for the borrower and income for the Trust.
  • Funds circulate internally, compounding wealth within the structure while remaining compliant.
Your empire now pays tax once — at 21% — then compounds forever. The IRS works for you.

LINKS

  • Internal Revenue Service (IRS) – Instructions for Form 1099-DIV: Qualified dividend rules.

  • IRS Publication 550 – Investment Income and Expenses (includes qualified dividend criteria and tax treatment).

  • SmartAsset – “Dividend Tax Rate for 2024 and 2025” (quick-reference table of qualified dividend brackets).

  • Accounting Insights – “Federal Dividend Tax Rates According to the IRS” (2025 thresholds for 0%, 15%, 20% rates).