|
So, first, congratulations on the huge success! That's a significant amount of income. Second, make sure you have your taxes straight. The S-corp thing is a reasonable idea, but only touch that if you have an accountant doing it for you. The IRS is less forgiving with bad S-corp filings than they are with normal schedule C filings. Also, if you've only been paying taxes on what you took home rather than the total profit of the business, get an accountant and a lawyer ASAP and fix the tax situation. (I doubt that's what happened, but one could infer from your original post that it's possible you mistakenly thought that leaving money in the business account means that it's not taxed that year. Even if you didn't think that, there are probably people who do think that and might be reading this thread.) As far as your actual question, here are some notes:
a) Remember that income from a business is fickle. Operate under the assumption that this income could disappear at a moment's notice.
b) If you have a spouse, their opinion is as important as yours, and statistically, they relate to money differently than you. (One stereotype that I've seen played out many times in real life is that men tend to think of money as a scoreboard, and women as safety and security. If a husband and wife ignore those differences, it can lead to intense marital strife.)
c) Your stage in life makes a difference. At an early stage in your career, it might be acceptable to swing for the fences, strike out, and start from 0. (That is, reinvest all the money in business growth, grow huge, and eventually implode, failing to gain any profit, but knowing that you at least tried to 100x the business.) In other stages of life, that's not an acceptable risk.
d) Regardless of life goals, I think keeping huge amounts of money (more than 18 months of salary and expenses) as cash in your business account isn't wise. It's not doing anything there, and inflation is currently high and will likely stay that way, so it's probably better to have excess money in an asset that matches inflation.
e) Don't over-fixate on taxes. Be sure to pay as little tax as you are obligated to pay doing what you want to do, but don't let your decisions be steered excessively be taxes. For example, a 401(k) is a fine way to reduce taxes if you aren't planning on using the money until traditional retirement age anyhow, but perhaps you want investments that can throw off current income, not for some time in the future when your bones hurt and all you want to do is sit around and drink martinis. You have enough income that you can take a mild tax penalty to actually do what you want. So, as far as what I would do, I would probably buy real estate in a growing area with low to moderate real estate taxes and a good ratio of rent to house cost. (So, San Francisco and New York are out because rent is cheap compared to the value of the unit, and Illinois is out because property taxes are so high that vacancies will cause you to burn cash.) Some states that I've been looking at include the Carolinas, Georgia, Florida, Texas, Tennessee. You're throwing off enough cash, that in a few years you can buy enough housing stock with cash to replace your $14K/month salary with rental income (remember to include the cost of management, maintenance, taxes, and insurance when calculating potential rental income!). At that point, you've bought yourself full flexibility, and then you can swing for the fences as hard as you like, and if you strike out, you're already so far ahead that it'll be an annoyance rather than a catastrophe. Anyhow, the above is what I would do (and am in the process of doing - my business isn't throwing off as much cash as yours is, but it is exceeding my income requirements). Alternatively, you can do the Silicon Valley approach - pour all your excess cash back into growing the business. Ask yourself: what would it take to 10x the business from here? Is it just that customers don't know about your business? Hire a marketing guy and get after it. Are people not converting from trial to paid accounts? Hire a sales person to hold the customers' hands. Is the market fairly well captured already? Think of adjacent markets to expand in (either similar markets in the US, or localize the product and sell abroad). Take the $23K/month that the business is throwing off each month, and spend it as hard and fast as you can. Or better yet, turn yourself into a Delaware C-Corp, write up a pitch deck, go out to investors, and raise $4 million at at $30 million valuation, and devise a plan to spend $200,000/month on growth. Triple, triple, triple, double, double, double! In 6 short years, your business will have $45,000333222=$9,720,000 in monthly revenue. Then go public! Or more likely, watch it crash and go to $0! Dust yourself off and do it again! (This part of the comment may sound snide, but it's not actually intended that way. The venture capital path is the path that was taken by most of the super-successful recent tech businesses. It works for many people and many businesses.) Best of luck! |