Big Beautiful Bill decoded: QSBS expanded to $15M, bonus depreciation restored, and R&D expensing fixed for US software companies

Uh if somebody has if somebody has a great product that's generating a lot of revenue um are are you I'm looking through the Google suite right now and you know I see lot of potential I see I see video lot of potential targets. Are you guys a buyer?

We are I mean I think I think we should I would love to talk to people with interesting ideas there. I think I think there's a great opportunity here to go build that next AI native productivity suite. We will build parts of it. We will buy parts of it.

If I looked at email for example, you know, we could have if we started to build an email experience anything like superhuman, nobody would have seen anything for for a decade. And so it was very important for us to get a jump start with the number one product on the market.

Uh there are other cases where I think we can build. I don't think we have to buy everything. Um but I I I think we're a a great home for startups that are lacking that sort of scale. um that want that distribution, want to get to a much broader group, but still want to work in an innovative environment.

So, yeah, I hope we're a great spot for that. Yeah. Awesome. Exciting. Congratulations. Um and come back on when the rebrand drops. I want to see that for sure. Excited about it. Can't wait. Congratulations. I know you guys are going to cook up something great there. This is fantastic. Cheers.

Well, we will talk to you soon. Have a great day. Great chatting, guys. Goodbye. Uh let me tell you about Adio customer relationship magic. Adio is the AI native CRM that builds, scales, and grows your company to the next level. You can get started for free or you can talk to sales.

That might be the cure for male loneliness. Or I'll make an intro. Yeah, just hit up Jordy. He'll introduce you. I'll introduce you right to the top. Uh let me also tell you about Finn. AI, the number one AI agent for customer service.

Number one in performance, number one in competitive bake offs, number one ranking on G2 G2. And you know I love bake offs. Do not get in a bake off within do it. It's just don't don't even start. It's gonna be a nightmare for you. It's gonna be bad. Really bad. No one likes how that ends. Yeah.

Uh anyway, our next guest is ready to join. Let's bring in Anker from carry. com. We like domain. We love welcome to the stream. Welcome to the stream. I think we're I think we might be on mute. Um, but we're going to want you loud and clear for this one because there's a lot of exciting news. There he is.

Good to meet you. What's going on? What's up, man? How are you? Good to be here. We're doing great. I'm excited to chat. I'm sure you've been It's boring boring tax stuff, but anytime people get I'm here for it. No, you make it digestible.

So, the goal I was talking to, it's like the last threads that I see on Axe that I'm like, "Thank you. Thank you for making this thread because it's actually it's actually deeply researched, thoughtfully organized and valuable and it's not like have you ever heard of Mark Andre?

Uh so yeah, the goal here is to create something evergreen, the definitive playbook for founders. So I I I think we want to create something that can be a resource for a long time ideally. Yeah. Great. Let's break it down. Let's do it. All right. Where where do we want to start? Yeah.

I I I figured it would be helpful to kind of walk through uh our our audience is pretty evenly split between early stage founders, operators and you know executives and then um or just startup you know uh team members in general and uh investors and so getting kind of a lay of the land on how the big beautiful bill uh impacts all those different groups would would be awesome.

But maybe first I would love uh you know some background on yourself, how you got into this Carrie and then we can get into all that. Yep. Sounds good. Well, Jordy Jord's an investor so has a little little Not for me. Not for me. Not for you. For everyone else.

Um yeah, but I've been running a company called Kerry for almost three years now. I am an immigrant to America. I moved here knowing zero about personal finance, zero about taxes. I sold my company 5 years ago and I was facing a giant tax bill.

So I hired very expensive lawyers and accountants and they were able to do black magic to basically reduce my tax bill dramatically and it made me realize like the tax code in this country it's kind of there's so much stuff in there but very few people actually know how to leverage it.

So when it was time to start a new company, I spent I don't know couple months looking into this and made it my mission to, you know, dive deep into everything in here.

And what we do at Kerry is we're like, can we build software to give people, we call it tax alpha, but basically ways of saving money on taxes on autopilot. So again, my compliance team is going to make sure I say this.

This is not tax advice, legal advice or investment advice, but we never give that kind of advice on this show. Yeah. Yeah.

But I have spent a lot of time in the last two three years working with at this point thousands of business owners and I think I have a pretty good idea of you know generally how business owners can save money in taxes and this piece of legislation is the most significant one we've had since 2017.

2017 there's and one and before before we dive into that I think it's helpful I feel like you approached the the tax code like very much like an engineer and in the same way that you know if you sign up for a software product you're getting the benefit of that company spending millions and millions of dollars like building this product and then giving it to you at a fraction of what it costs to create you're with Carrie the the idea has been how do you kind of create that same effect in some way for taxes because if you're working with a f, you know, one of the best CPAs in the world, they will charge you for the service and then they'll go charge you the same price to someone else for that same service and they'll just do that a bunch of times.

And you guys created a different um you know you you have a sort of a different incentive which is how do you create the maximum amount of value and then make it available to as many people as possible which is kind of the traditional software playbook uh applied to um applied to to a new category. Thank you.

You pitched my company better than I did. But yeah, I mean there's all this stuff. I mean there's so much nuance in it but like from a software perspective none of it is specifically hard. The the challenge we have is we deal with fintech, right? We're dealing with real money, custody, real assets.

That's the complexity. But there's so much stuff in the tax code that we're look if we're focusing on I don't know 1% of what's out there. But there's like I generally believe for most people, I know VCs probably disagree with this. There's no alpha in investing.

The average person should just index the market and get to work. But you can find alpha by saving money on taxes. If you can save 10 20% off the top so you have more dollars to index the market. Um that's basically the thesis behind what we're building. Yeah.

Um so talk about uh talk about kind of maybe how the bill came together. What what you expected to be in what what maybe didn't make it in. There was a lot of chatter maybe was it four months ago around the carried interest loophole. People were pretty triggered by that. I was triggered by that.

Um, but it sounds like that didn't make it in. Um, but yeah, break down kind of maybe the leadup to the bill and then how it actually ended up getting implemented in its 10 states. Yeah, I should also caveat by the way that like I'm going to tell y'all what's in the bill.

It is not an endorsement of the politics behind it. Like you can argue either side of that that like that is out of scope for what we're talking about. We're just talking about reality today. What what is what is becoming law? So yeah.

So 2017 there was something called the TCJA tax cuts and jobs act where there were a lot of temporary measures that benefited groups of people the administration wanted to benefit. Typically this was entrepreneurs, business owners, investors and real estate developers.

Part of this was there was a lot of short-term measures put out for that were only going to last eight years in the future. But what this bill has done is it's made most of them permanent.

So there's a lot of things like you know if we're talking about startup founders specifically there's and we'll break them down there's many things in this that will make your life better. Even if you're a soul prop LLC or an escorp a bunch of things make this better.

If you're someone that's coming up against the estate tax this bill helps that. So lots and lots of good stuff. Uh maybe you could kick off with a little bit of the background on like the understanding of QBS.

Like for the last decade, I feel like the rule of thumb has been like you start a company, you sell it for a bunch of money. Uh the first 10 million, you don't have to pay federal taxes on it.

So if you're in California, you're still going to be paying California uh tax potentially, but you might be able to think about it as like that that if you get a $10 million liquidity event, you're basically taking close to 10 million potentially potentially 10 million in New York. 10 million.

So yeah, New York 10 million. And so um so you don't need to move to Puerto Rico. Good news for that. Um but uh that was a funny time when people were were we're were so obsessed. I got to move to Puerto Rico now. You're in Puerto Rico. Oh, you're having a massive liquidity event. Yeah. Um but but yeah. Yeah.

Talk through talk through the reality like how how real was the the original QSBS uh um uh process? what were some of the the the hiccups if it was an aqua hire or an asset sale that might trigger uh income tax or something like that and then and then talk to us about what's changing. Yeah.

So QSBS for those that don't know it I mean qualified small business stock this is what kind of got me down this whole path. I mean I was running my startup for 6 years. We were about to sell the company and I didn't know about QPS.

It was the best surprise when my accountants are like guess what you actually could not pay taxes on $10 million. I was a resident of New York, so no state tax as well. But not just that, you the QSDS limit is per shareholder. So I can give shares to my brother, my parents, and now your $10 million becomes $40 million.

You can set up trusts as well to multiply it. So it already was exceptionally generous and it's available to every shareholder, investors and employees. Though sometimes employees don't hit the threshold since you have to hold shares typically for five years to unlock the benefit, right?

Five years is a long period of time. One of the big changes this bill brings about is now if you hold shares for only 3 years, you get half the exemption and if you hold shares for four years, you get 75% of the exemption. Wow. So that's one big change.

And and to just to level set here like the whole idea behind this particular tax incentive is to incentivize innovation and building new companies, small business. It's the opposite of like high frequency trading. You have to create value materially.

The people that are primarily like the the average person that's benefits from this is somebody who starts a plumbing company, runs it for 20 years and sells it. And is that right or is it is it half I think I I think that's the intent of it.

I think the reality of it is Silicon Valley benefits from it more than anyone else. I think the intent and what's actually happening but again that gets into the politics is a little bit different because technically services businesses are not included. Yeah.

You have to um but the reality is if you look at most big tech exits right now people are paying substantially less in taxes. There's a New York Times article with the Roblox founder. He set up 12 different trusts to multiply QPS to $120 million.

Um he actually joked that raising a kid in California is so expensive that the QPS exemption is what makes the whole math worth it. It's kind of an insane thing, but that's a crazy thing to say. Yeah.

What types of small businesses what what what are what are all the different types of small like I mean just generally like what are the different categories? Because if you take out services like the software doesn't apply to that, right? You can just be building regular SAS.

So typically typically the requirements for QPS are a few different things and one of them is changing now is one you have to be a Ccorporation. So that's historically been like LLC's corps don't count. You have to be a CC corp and hold shares for 5 years.

When you acquire the shares, the company should have less than 50 million in assets. That was the old rule. Now it's 75 million in assets for startups. That is typically the cash raised, not the valuation. So it takes you pretty far, right? Like it you before you raise 75 million bucks, you get you get pretty far.

And then there's other stuff. It has to be an active trade or business. And there's a few disqualifying categories like services or something based of someone's brand does not count. But the way QSPS works is it's ultimately a stance your accountant takes.

So, as an example, let's imagine you're a tech- enabled service business. You could find a lawyer or an accountant to take a stance that QPS counts and there's a, you know, there's a good chance it just works out that way. That makes sense. What besides QPS has has changed in any meaningful way. Yep.

So, again, just to reiterate, the other big benefit is the $10 million limit per share shareholder is now 15 million. So three big changes 10 to 15 there's now partial QPS and you can now be up to 75 million in assets. Wow. Outside of QSBs I would say is that back date? Is that back date at all? No.

So it only for companies incorporated from Friday on or you have to buy the shares from from July 4th. Friday onwards. Wow. Oh wait. So so this only affects going forwards. Yeah. Going forward. But new share purchases would count. Yeah. Okay.

So if you buy shares, but theoretically what I'm actually not sure about is probably maybe a lawyer can weigh in and if I'm an employee who has options and I exercise my options today, would that count? There's a there's a chance it could. Mhm. Interesting.

So if you own 20% of a business started in 2019, you hit your five years, the company sells for $100 million, you get 20 million, you're still at the $10 million QBS exemption, you're not going to unless you set up a trust and gift shares to someone else. Sure, sure. Sure. Interesting.

Um, can you explain this bonus depreciation concept? Yeah, absolutely. Bonus depreciation. I think Do you already have the private jet dude on?

He's coming on after this, so he'll talk about big for it's big it's a big for his business too but basically basically the way depreciation works is when you buy any kind of physical asset like consider buying a commercial building it loses value every single year every year you can take that loss of value is depreciation it's a phantom loss in that you're not losing money but you can deduct it from taxes sure what bonus depreciation lets you do is it lets you frontload depreciation for typically things that have a useful life of less than 10 years you can take all of the depreciation upfront.

Mhm. So, this is really significant for all the real estate bros out there cuz what they can now do is you can buy a building. You can do something called a cost segregation study which will take the building, it'll break it down into all of its components.

It'll be like the HVAC is worth this, the windows are worth that, the doors are worth that. Anything with a usable timeline of less than whatever I think it's 10 years, you can depreciate upfront.

So the upshot is you can buy a commercial property for million bucks, 2 million bucks, put 20% down, but also get a 20% tax loss. So you can deploy cash much faster. And people think this could lead to real estate prices growing. But this applies to private jets, heavy machinery, cars, all kinds of equipment.

Makes sense. What else are you tracking? Anything else? Stand estate taxes big, right? Estate taxes are are are massive. I mean, historically, when you die, anything above the estate tax exemption gets taxed at 40%. This bill makes it permanent at $30 million per couple, which is a very, very high threshold.

That was actually supposed to go down to 10 million bucks. So, it's a huge swing and there's a lot of sort of trust planning companies that were betting on this happening, but now it's a much much bigger exemption. They were betting on 10 happening and so 30 is correct.

Like had the election gone a different way, what would have happened is the estate tax would have fallen by almost half. Instead, it actually went up. Interesting. Uh what talk about this relief for software companies in America um advertising software developer salaries.

I remember that hitting the timeline and being really hotly debated. I don't I don't remember if it actually had a material impact on a lot of businesses. It seemed like there was a lot of fear, but I don't remember it actually putting friends. What happened? Take me through it. I saw like it was a terrible piece of