240: Smart Tax & Exit Strategies Every Entrepreneur Needs
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Welcome back to another episode of The Richer Geek Podcast! Today our guest is David Flores Wilson, founder of Sincerus Advisory and named an Investopedia Top 100 Financial Advisor. He helps entrepreneurs, tech professionals, and business owners maximize wealth, optimize equity compensation, and exit businesses the smart way. In this episode, David breaks down tax-saving strategies, the power of donor-advised funds, how to use real estate for wealth building, and why exit planning should start on day one, not the day you’re ready to sell. If you want to keep more of what you earn and create a lasting financial plan, this conversation is a must-listen.
In this episode, we chat about…
How David’s early experiences with family businesses shaped his career in financial planning.
Why entrepreneurs need a different approach to financial planning than traditional employees.
Strategies for deferring taxes and leveraging state residency for long-term savings.
Understanding Qualified Small Business Stock (QSBS) and how it can save millions in taxes.
The role of charitable giving strategies (like DAFs and charitable buyouts) in wealth preservation.
Why exit planning should start when you form your business, not when you’re ready to sell.
How to balance wealth-building in real estate vs. stocks based on personal skills and opportunities.
The emotional and identity shifts entrepreneurs face when selling a business.
Key Takeaways:
Entrepreneurs often need customized financial planning because most of their wealth is tied to their business.
Tax deferral strategies can provide huge advantages, especially when combined with residency planning.
QSBS can exempt up to $10 million in capital gains if structured correctly, an often-overlooked opportunity.
Charitable giving can be structured to maximize both impact and tax benefits (e.g., bunching, DAFs, charitable redemptions).
Real estate offers unique tax advantages but requires clear strategy and sometimes specialized partners.
Exit planning isn’t just about money, it’s about legacy, lifestyle, and identity after the sale.
Resources from David
LinkedIn | Sincerus Advisory | Blog: Planning to Wealth
Resources from Mike and Nichole
+ Read the transcript
Mike: Hey, everybody. Welcome back to another episode of The Richer Geek Podcast. Today, we have David Flores Wilson. He's a top financial strategist for entrepreneurs, tech professionals, and business owners. He was named Investopedia's Top 100 Financial Advisor. He's been featured on CNBC, New York Times, Kiplinger. We all know what those are. He helps clients maximize wealth, optimize equity, and compensation. And a lot of things that you guys don't realize is the exit business plan. How are you doing, David?
David: Doing well. Excited to be here and have the conversation. Again, thank you for all the work you do in financial literacy. It's a great area where it's not taught in the schools, and so the work that you do is really, really helpful to people listening.
Mike: Yeah. You know, that is the truth. Even college level. I 've hired some MBAs and they have no idea what a lot of this stuff is. I'm like, "What do they teach you guys anymore?" You know, I don't even want to get started on it, but before we get into the meat of our podcast, give us a little bit about your background. How got involved in the financial services area?
David: It started pretty early I think, you know, my dad was a CPA and so I always got little sort of nuggets of financial literacy growing up. And on the other side of the family, my grandparents had a series of family businesses and so I was working in those different businesses growing up on summers and weekends. And then what I saw is that they actually didn't make a lot of good decisions, right? So they lost one of their businesses 'cause they didn't have the right coverages, they didn't have the proper estate plan in place. You know, that kind of really inspired me. I had an investment banking career after college, and then I shifted to financial planning, which was my passion. I was kind of doing that as a hobby. And so, I make sure I work with founders and owners so that they don't make some of the same mistakes my grandparents made, so that they can advance the ball and really have good outcomes when it comes to financial planning.
Mike: You know, a lot of people say, "Hey, you know what? I have my CPA. I may or may not have a financial planner. I have this guy that I buy and sell stocks with, got a capital mutual fund. I'm an entrepreneur." And that doesn't work for the self-employed, does it?
David: Yeah, I mean, I would take a step back and say, "You know, whether you're an owner or a serial entrepreneur, financial planning is fundamentally different," or for people like us, right? That owns businesses that are in the trenches, making decisions on hiring and allocating budgets and it takes a different approach, right? 'Cause entrepreneurs, you know, they're comfortable taking risk but they want to define that risk. They wanna control that risk as well. So many entrepreneurs, they have the vast majority of their net worth tied up in their business or their real estate.
Mike: Yeah.
David: And so, it takes a specialized set of skills to kind of look at that situation 'cause I think a lot of advisors might look at a business owner's balance and say, "Hey, you need to diversify right away." Oftentimes I'm like, "Well, I mean, do they really," right? Let's really understand what the rate of return in their business? And if that rate of return is over 20%, most of the times it makes more sense to put more money into the business than to take out of it the business than put that in a brokerage or a 401(k). And so, you know, just being very intentional about that sort of capital allocation considering where that business owner wants to go, considering you know, how effective you know that business is at generating a rate of return relative to the stocks and bond market. And then again, I think you're also alluding to that there're so many different ways to save money on the tax side. And so just partnering with the right CPA and putting it together with a full team and saying, "Hey, what are the ideas that we have?" Whether it's you know, structuring ideas to save money on taxes or what the entity itself, or the deductions and credits. Maybe deferral accounts or even just emphasizing long-term capital gains or versus ordinary income. I just get the full team to think about that and update your team over time, if that makes sense. As sort of business owners, entrepreneurs kind of level up their own business, right?
Mike: Yeah. You know, 'cause a lot of it is, I mean, we pay enough taxes. A lot of us, we take our own withdrawals, we take our salaries and it just goes into a savings account, and 'cause we like seeing that I have cash, but that's not working for me. It's like, why did you grow this business? Why did you do all this to get basically 0% return? Why are you not doing these tax deferred? You know, instead of putting it at all just kind of like an employee where you put it into a some type of an IRA, some type of a deferred account. So what are some of those different things? We probably have a lot of entrepreneurs listening and they're shaking, nodding their heads. They're like going, "Yep, I've got a lot of money in the bank." What are some of the things that we can do just to help us defer taxes or just kind of defer our income, you know? 'cause I don't need a lot of income now, but I'd like to defer and pay the taxes another 20 years or so. So what are some of those things that the entrepreneurs can do?
David: I think that there's sort of a whole category of things when it comes to deferral, right? And I think that a person's particular situation matters a lot. In New York City where a lot of the business owners and entrepreneurs I work with are, if you're able to defer in New York City. And sort of avoid paying New York State and New York City taxes. And then one day, retire from the business or sell the business and you're in Florida or Texas. And it's gonna come out of those deferral accounts and not pay any sort of state or city tax at a time. And so there's a little bit of an arbitrage, right? So you're sort of saving maybe 37% at the federal level, maybe up to sort of 12% at the state and city level. And then it kind of comes out later and you can be smart about when you make those distributions. But for some people that's not the case, right? They might actually move to New York City, in sort of retirement whether they want tosee some shows or they prefer the doctors in New York City or whatever it is. And so that decision might make, say, "Okay, maybe it doesn't make sense for that person to defer in a low tax state in their working years and then take the money out in retirement." So every situation is a little bit different and so just kind of thinking through running the projections and even the business themselves, right? I think that for some people, there's an opportunity called qualified small business stock, which has a $10 million capital gain exemption when you sell your business. There's a lot of requirements, right? It has to be, it can't be a service business like, you know, my business it usually flies really well to sort of software businesses that are high growth and that business, if it's a C corp, if it's more than five years and then it sells, they sell that business as a stock sale. Well then, yeah, they could have a $10 million capital gain exemption. And so all those little different strategies and thinking through the pros and cons, cause for some people that's completely not appropriate, right? It might make sense to say, "Hey, I'm gonna be an LLC, I'm gonna flow through the losses in the early years of the business." And C corp doesn't make sense with potential double taxation but maybe it might make sense to start with an LLC and then go to a C corp later. And so I think that having the right team to sort of think through all these kinds of different permutations to save taxes on a structural side on the deferral side, and of course the meat and potatoes of the regular deductions and credits and things like that that most CPAs are pretty good at.
Mike: Yeah, and ladies and gentlemen, I'm sure a lot of you have just regular CPAs and things like that, but my God, it wasn't until I started having people on my podcast or listening to people like you, it's like going you go ask your CPA and it's like, "Do we do this? Do we do that?" And they're like going, "No, you didn't ask me to." You know? So the difference is having an advisor who actually says, "Hey, let's sit down on a regular basis." Go over some of your proforma, what you're going to do next quarter and have some talks and then they actually ask you, "Why are you not doing this or are you doing this? Do you want to do this?" It's light and day sometimes with finding the right type of advisor. You can still have your CPA, you can have, you still have your fractional CFO, but they have to partner with someone or have someone on their team that knows the entrepreneurship side.
David: Yeah. Our experience oftentimes with the client base is that, not to talk bad about the CPA business, but I mean, the CPAs have so much knowledge, right? But over time, what we've seen in the marketplace, and there's a variety of reasons for this, the increasing complexity, new tax law changes all the time. As well, you know, the marketplace sees them sort of at a cost center rather than so many, oftentimes, they're doing sort of a volume business and doing tax returns even though they have the knowledge to do advisory work. And as well, not many people are coming out of college and want to go into the accounting profession. They're sort of fighting for that junior talent. Frankly, many of them are overworked and have too many clients and so finding the right one, once you've found it, the person that can really partner with you to think through, you know, the intricacies of your business or businesses and what sort of applies, and the pros and cons of different strategies. I think there's sort of, whenever it comes to some of these strategies, right? Because there, there's pros and cons.
Mike: You know, another thing that my CFO was asking, it's like, "Why are you paying, why are you doing all your charity work through your own personal side?" I'm like, "I don't know. I have money in the bank and someone wants money in, or a large sum and I do this." And then they're talking about what are the private foundations or the DAFs, why are you not setting these things up? And I was like, "Because no one told me about 'em." I thought that foundations were for the Bill Gates of the world and things like that. So talk to us a little bit about that type of thing.
David: On the charitable side, it is pretty interesting, right? 'cause sometimes we'll meet a new prospect or a client and charitable giving will come up or maybe we'll see it on their tax return. Sometimes we see people where they're like, "Okay, I'm getting a huge deduction because I give to charity." Then when you see the tax return, you're like, "Oh no, this person's taking the standard deduction." And they paid off their mortgage, so they don't have a lot of itemized deductions if they went that way. And so, whether it's the mortgage interest deduction or the charitable deduction to really understand, okay, is this really, are you actually getting the deduction? And if you're not, well, maybe it makes sense to bunch up the charitable giving you're going to do over the next five years. If you're gonna give $5,000 per year for not the next five years, well then let's bunch it up in the first year to guarantee that you're going to be itemizing and that way you'll get for sure, get the deduction and then distribute those funds from the donor-advised fund to the charity. And then, let's double up the strategy, right? Let's like, okay, well when we donate to the donor-advised fund, let's donate shares of stock, for example, maybe liquid securities that have appreciated a lot. And so that way you avoid the capital gain and then you also get the deduction. I think when it comes to exit planning and people kind of selling their businesses at some point. These charitable strategies can also be very helpful, right? We've seen a family, for example. It was a succession to the next generation and so they had already gifted some shares to the second generation, the children and they were working in the business. Instead of continuing to give more because there would be gift tax implications that they gave too much. So what they ended up doing is they gave some shares to a charitable organization. And then they did what's called a charitable buyout or charitable redemption. The shares were purchased from, by the entity they were purchased from the corporation and the shares were then retired. What ended up happening was they got a deduction, giving the shares to charity and then they kept the shares in the family. Those shares were retired, the percentage of shares that were owned by the children went up because there were fewer shares outstanding. And so I think just thinking through how related some of these things that people are trying to accomplish, like you wanna minimize taxes, you wanna think about the next generation, you wanna maximize your estate planning. All these things are sort of a Rubik's cube of different issues. There isn't really a cookie cutter way to do things and so, getting your team to really think about what's the best way to do, whatever you're trying to do, whether it's, do a succession, sell your business or just maximize cashflow. All those different things.
Mike: Yeah, and you know, it's kind of weird. You can also kind of plan and choose depending on the attitudes of the White House on whether or not they want to tax more or tax less. Cause I've had people say, "You know what? Let's hold on to it and don't do anything until the next election to see what they're thinking." I never thought about it that way. It's like, wait till this certain type of person goes into Washington because they may, the estate planning and what you do with it, the taxes and the wealth taxes and that also kind of plays into whether or not you want to do something now or you want to defer it down the road.
David: Yeah, absolutely. Right now, federal estate tax exemptions, $13.99 million per person. We can sort of expect that to be maintained. Again, this could happen any day now, or it could happen in December, when the extension of the Tax Cuts and Jobs Act of 2017 goes through or not. But yes, I think there were many people that were considering, "Hey, I'm gonna take advantage of this, give tax exemption and kind of do it. In 2024, for the most part we're saying, "Hey, you know what? Probably makes sense to just wait a little bit, right? Until we get a little more certainty and so you can imagine over the course of the next several decades the estate tax and the gift tax and even the brackets themselves and the income side could change dramatically and switch back and forth. I think the key is to have a plan. Sometimes you wanna move quickly and other times you just wanna delay that decision. But I think that a lot of times, we see people that, even inertia itself is a decision, right? And so we really advise people to, let's be intentional about what we're doing, even when we're just waiting. It's gotta be an intentional decision, right? I think there's an old Chinese proverb, right? "You make a law, you make a business." I think that implies investing. When we had a big sell off here in April, there was uncertainty in the markets. That's an opportunity for investors and owners to maybe tax loss, harvest some positions, right? Say, "Okay, well I bought it at a hundred, it went down to 80, maybe I can sell it, take the $20 loss, buy something else, and then when that $80 goes back up, I catch the upside. And I also got that tax loss harvesting that can apply to my investments." That's something that, for example, someone's selling a business, they might wanna supercharge, tax loss, harvesting 'cause they can apply all those built up losses to a capital gain potentially, when they sell their businesses.
Mike: Talking about the stocks, it's more of an emotional thing. Stocks, you know, someone sneezes, everything goes down. It's like this roller coaster. I'm actually getting more investors on the real estate side because people are just like, they're not getting outta stocks totally, but they're like going, " I'm getting too old to handle all this stress and this anxiety. Let's put something in something that, you know, doesn't yo-yo as much." So talk about stocks versus real estate. Both build wealth, both of them are great things. So what is your take on wealth building between the two?
David: Great question because I think that in the tax code, the real estate investing side of it is unbelievable, right? Like the ability to save money and taxes when you purchase, when you manage, when you sell, whether it's a 1031 on sort of the reinvestment of a sale, whether it's the class segregation studies so you can get accelerated depreciation. Whether it's being actually a real estate professional and getting those 750 hours and then sort of applying losses on the real estate to regular income. On the tax side, so many of those things that you don't have a parallel sort of system of those sort of tax saving side. It isn't either or it really depends on the person, right? I think that there's clients that we work with that have built up incredible portfolios and are kind of sitting on that income they've generated. And they've generated essentially because there's been an excessive amount of depreciation over many years. They haven't really paid a lot of taxes on that income. And then so, they depreciated those properties to very low amounts and they're planning on giving them properties to the next generation. And so that the next generation will get a step up in basis to market. If they passed away and their heirs sold it the next day, well, they would pay no taxes on it. There'd be no capital gains. But that's a very specific person, right? They had a long-term view and they also had a comparative advantage, right? They were good at identifying properties. Other people's comparative advantage could be maybe their cost of capital or maybe finding good managers. We're saying, "Hey, I'm really good at identifying particular real estate sectors, whether it's hospitality versus residential." It's sort of introspective, right? In terms of, what are you really good at? And can you add value on the real estate side and take advantage of these things or find the right partners to do so? There's times where we have clients who are saying, "Okay, this is a property I'm investing in." We'll run some proforma models on that and test their assumptions around rental increases and repairs and all that. We do the financial modeling, we'll have an internal rate of return of 18%-19% I'm like, "Let's do that." That sounds awesome, right? And other times we'll run it and it's like, "Oh, you got 7%." I'm like, okay, we have an illiquid asset that can't really diversify and so relative to a diversified portfolio, I'm gonna lean on this particular project or is a more diversified portfolio. Then when you find a project that has that great IRR, then we'll take the money out of the investment account, out of the brokerage account and put it in that property. So I think it really depends on the person and of course, the project and what the overall balance sheet looks like for sure.
Mike: Yeah, and I think a lot of people that are still working, that's why like the limited partnership being an LP stands out for me. I can get a lot of that same thing, but I don't have to even think about, you know, just get my distributions, roll it over if I want. It kind of allows them to just kind of diversify the portfolio. That's why we're seeing a lot of, lot of people wanting to be partners because they understand real estate, is it? Real estate can really help them, especially when the K-1s come out but they don't have the time or the effort or even the knowledge. And they don't want the knowledge. They just want to know where that IRR is? What am I getting? So we're seeing a lot of that, especially in today's market with people just doing the LPs. So let's talk about people that are entrepreneurs, they have businesses. One of your specialties is the exit strategy. And most of us are probably thinking about it wrong or doing it wrong, and they don't even think about it until, "Oh, you know what? I'm old. Let's sell now." Instead of selling one, think about the extra strategy when they first start the business.
David: Our view is that when it comes to exit planning, it's something entrepreneur, and business owners should be thinking about when they form their business, right? Because I think that the decisions you make when you form your business can inform what type of exit plan situation you have and so the sooner you start, the better it is, right? I guess kind of everyone says that about everything, but I think that exit planning can just be good business, right? To get ready from a personal perspective, from a financial perspective and a business perspective, can actually increase the value potentially of the business itself. So you can do exit planning, create a more valuable business and decide not to sell the business or to go forward and it's part of that discovery process because some of the structures, the education process, it's gonna take a while, right? 'Cause I think if people go quickly and they sell their business very quickly, people are gonna come outta woodwork and say, "Hey, you should do this, you should do that." "This is a way you can save money on capital gains. This is a way you can save money on the earnout." I think that business owners need to really understand the pros and cons. Whether it's a charitable structure or it's a capital gains mitigation structure, or otherwise exit planning can kind of help that. That process of saying, Hey, you know, how would someone else look at my business, right? How much recurring revenue is there? What do the processes and systems look like? Do I have a repeatable sales funnel that integrates very well with my marketing and do we have any risks on the technology side or on the legal side? And so just kind of going through all those checklists and are my financials are ready to go, right? Do I have a system, a financial function that has regular monthly reports and I can kind of toggle up and down based on my KPIs and understand how my business is going to be doing and what my tax liability's gonna be. And so exit planning is really just sort of saying, "Okay, let's get ready and make the business more attractive." But then also, getting someone personally ready, right? Are they ready to step away from the business eventually because so many business owners regret selling their business, right? Even a year later. We oftentimes will just literally just do like a time audit. Like, "What are you spending your time on? And what proforma will you be spending your time on when we sell the business? You're saying, "Okay, well you want to golf more, you wanna spend time with your grandkids?" That's 10 hours a week. What about the other sort of 110 waking hours of the week as well? Right? Let's be very intentional about it. Your identity is gonna change, right? Are you gonna be okay to say something like, "Oh yeah, I used to own a business as opposed, I'm a business owner." And are there passions that maybe, you know, your vision will shift? Transitioning to something is a big part of exit planning, not just the transaction itself which of course is, you know, super important, just kind of understanding, "Okay. What are your preferences in terms of the stakeholders, right?" Are you trying to preserve legacy? And so maybe you might wanna do an ESOP or a management buyout. Are you trying to just get the most after tax proceeds and well then maybe a strategic buyer? A competitor or someone looking into, get into new markets or something like that, would buy your firm. Or is this a succession, right? Do you care about keeping your name on the door and having that go to family and how can you do that? How do we mentor the next generation? How do we develop 'em? And so all those different things are part of exit planning and it can seem so overwhelming, but I think that just chipping away at it, you know, sort of 90 day sprints in particular areas and just having, in very discreet subject areas. You're in a much better position just a few years later, whatever the option the business owner wants to pursue.
Mike: Yeah. And ladies and gentlemen, it's David Flores Wilson at c advisories. When people go to your website, sincerusadvisories.com, is that correct? It's sincerusadv.com. What do they find on, you know, when they go to that website, how can they get a hold of you? Is there any educational material?
David: So we have a blog that's focused on business owners and entrepreneurs. It's called Planning to Wealth. The structures and some of the financial planning techniques that business owners might wanna consider are there as well. If they want to chat a little bit more about their personal situation, they can do that on the website as well.
Mike: Yeah, everybody again, David Flores Wilson, you know, if we've kind of piqued your interest that perhaps there should be a little more strategy in your life as far as taxes go or financial advising. Reach out to David Flores Wilson at Sincerus Advisory. David it's been a pleasure having you on. Thanks for your time and have a great afternoon.
David: Thanks for having me here. Thanks.
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ABOUT DAVID WILSON FLORES
David Flores Wilson, CFA, CFP®, is Managing Partner at Sincerus Advisory, where he helps entrepreneurs, tech professionals, and business owners build wealth, plan smart business exits, and achieve financial freedom. Named an Investopedia Top 100 Financial Advisor, his insights have been featured in CNBC, The New York Times, Kiplinger, and InvestmentNews. A Certified Exit Planning Advisor, David specializes in equity compensation, tax-efficient strategies, and strategic philanthropy. Outside of work, he’s a former Olympian who enjoys Brazilian Jiu-Jitsu, yoga, and snowboarding.