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We're Shutting Down and I'm Scared

startupsanonymous.com

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Re: We're Shutting Down and I'm Scared

#81

Post by vonmoltke »

tunesmith wrote: post #65
poulsbohemian wrote: post #46

Earlier quoted context omitted.

See your accountant for advice on this point. Disclaimer: I am not an accountant, nor is my business set up as an S corp. The way it works is this: you form an S corp, and as the owner you pay yourself dividends rather than straight income. That way you aren't taxed at normal income tax rates but instead at the capital gains rate. At the same time, because you are now an employee of the S corp you personally only pay…

I think this is incorrect in two ways - you do still have to pay yourself salary, and dividends are taxed at normal income rates (due to pass-through) rather than capital gains rates. It's unfortunate that they are called dividends, because stock dividends are taxed at capital gains rates.

Qualified stock dividends are taxed at a special capital gains rate. Unqualified dividends are taxed at the recipient's regular rate. See http://www.dividend.com/dividend-education/qualified-vs-unqu....

Re: We're Shutting Down and I'm Scared

#82

Post by ceph_ »

tptacek wrote: post #18

Been there. * If your payables and debts are all in the company's name, nobody is coming for your house. The likelihood that your business was going to die before you could pay all your debts was priced into your contracts. If you have employees, pay them and get them off your books first; employee wages are, depending on the state you're in, the one likely exception to that rule. * If they were in your name, well, t…

> * Are you going to get ridiculed for failing? Obviously, you're not an HN reader. You'd have gotten ridiculed for succeeding. Ridicule is the air we breathe. Why do you care?

Haha, so true. Failure is lauded; success is criticized and mocked mercilessly.

Re: We're Shutting Down and I'm Scared

#83

Post by tptacek »

dctoedt wrote: post #44
tptacek wrote: post #18

Been there. * If your payables and debts are all in the company's name, nobody is coming for your house. The likelihood that your business was going to die before you could pay all your debts was priced into your contracts. If you have employees, pay them and get them off your books first; employee wages are, depending on the state you're in, the one likely exception to that rule. * If they were in your name, well, t…

At the top of your payment priority list: Remit to the U.S. Treasury the required withholding for employees' federal income-tax and Social Security / Medicare tax. The IRS will come for your house if you don't.

I wrote a comment here about how the IRS is actually not that unreasonable when it comes to owing more than you can pay (been there, too!), but then reread DC's comment and saw that he's talking about withholdings for employees. Yeah, don't fuck around with that.

Re: We're Shutting Down and I'm Scared

#84

Post by tempAccount00 »

dctoedt wrote: post #44
tptacek wrote: post #18

Been there. * If your payables and debts are all in the company's name, nobody is coming for your house. The likelihood that your business was going to die before you could pay all your debts was priced into your contracts. If you have employees, pay them and get them off your books first; employee wages are, depending on the state you're in, the one likely exception to that rule. * If they were in your name, well, t…

At the top of your payment priority list: Remit to the U.S. Treasury the required withholding for employees' federal income-tax and Social Security / Medicare tax. The IRS will come for your house if you don't.

2nd that - my parents lost their business. Before they did, their idiotic "accountant" lied to my dad about having paid withholdings. They went into receivership actually owing a great deal in taxes that they could have paid (they paid other creditors first). My parents lost everything and are still in deep trouble w/ the IRS. Pay your taxes before anything else.

Re: We're Shutting Down and I'm Scared

#85

Post by shmerl »

> I’m broke and it’s not fair to my wife to go any longer without pay... I can’t imagine working for somebody else.

In such circumstances one might need to do what's required, and not what one would like to. I hope his wife will explain that to him.

Re: We're Shutting Down and I'm Scared

#86

Post by poulsbohemian »

tunesmith wrote: post #65
poulsbohemian wrote: post #46

Earlier quoted context omitted.

See your accountant for advice on this point. Disclaimer: I am not an accountant, nor is my business set up as an S corp. The way it works is this: you form an S corp, and as the owner you pay yourself dividends rather than straight income. That way you aren't taxed at normal income tax rates but instead at the capital gains rate. At the same time, because you are now an employee of the S corp you personally only pay…

I think this is incorrect in two ways - you do still have to pay yourself salary, and dividends are taxed at normal income rates (due to pass-through) rather than capital gains rates. It's unfortunate that they are called dividends, because stock dividends are taxed at capital gains rates.

Curt - perhaps I could have written out explicitly "you still have to pay yourself a salary" but that was what I was trying to infer with my comment of "...because you are now an employee of the S corp..." I see you are also in Oregon, you might have better local advice for the parent poster. At a minimum, since you are both local to Portland you should meet up for a beer. ;-)

Re: We're Shutting Down and I'm Scared

#87

Post by tptacek »

tunesmith wrote: post #58
JoshTriplett wrote: post #31

Earlier quoted context omitted.

> Lots of LLCs turn themselves into S Corps, because (a) there's an old sketchy tax dodge about self-employment/FICA tax you can do as an S Interesting. Got a pointer to details on that?

It's not as sketchy as it used to be, due to some rules changes in the last few years. As a one-person S-Corp, you run payroll and you are your own employee. You can set your salary, and you can also pay yourself in distributions. Salary is subject to FICA, distributions are not. Both are subject to income tax. When you pay yourself salary, your "personal" side pays its half of the FICA, and your "business" side pays…

As I understand it, reasonable though your claimed salary might be, if you're making money on the difference between distros and salary (which stops being an issue at around the 100k point), you're filing returns with a big red audit flag on them. The tax savings probably aren't worth the heartache for a lot of people.

Not for nothing, but as an entrepreneur who has been in exactly the situation contemplated by this scheme: avoiding taxes by structuring your income as a "distribution" rather than salary is shady. I think it's unethical. People that don't happen to run S Corps don't get to do it. I'm prepared to lose the argument, so let me concede it in advance and avoid polluting the thread.

Re: We're Shutting Down and I'm Scared

#88

Post by adambenayoun »

ThomPete wrote: post #66
patio11 wrote: post #34

Earlier quoted context omitted.

In addition to Thomas being right about employee wages being able to "pierce the veil" in many states, they're the people most at risk in this situation, so you owe it to them to make sure they're taken care of. It's the one circumstance where I would backstop a company problem with personal funds. (If your company was also behind on e.g. rent or hosting, on the other hand, that risk was priced into contractual terms…

Agree. Not paying yourself is fooling yourself into believing you have a sustainable business. What you have is a source of revenue (not income) and it should be mentally in the "side projects" category. I.e. you should probably have a job and do this on the side. The stories about people who didn't pay themselves but finally made it are far between and is not recommended IMHO.

Not paying yourself is bad since it constantly makes you worry - which in turn is really bad for your company. Figure out a fair and low salary you can pay yourself and be 100% emotionally invested in your company without worrying.

Re: We're Shutting Down and I'm Scared

#89

Post by pmorici »

tptacek wrote: post #18

Been there. * If your payables and debts are all in the company's name, nobody is coming for your house. The likelihood that your business was going to die before you could pay all your debts was priced into your contracts. If you have employees, pay them and get them off your books first; employee wages are, depending on the state you're in, the one likely exception to that rule. * If they were in your name, well, t…

"Shitty credit is not that big of a deal."

You realize that your credit record effects more than just your ability to get credit and other financial services right? Insurance companies will sometimes deny coverage based on information in your credit record. ie: health insurance.

[0] http://www.consumer.ftc.gov/articles/0152-how-credit-scores-...

Re: We're Shutting Down and I'm Scared

#90

Post by paultannenbaum »

I sympathize with most of this post, but the one thing that I don't get is this line:

"I can’t go much longer without a paycheck. But, I can’t imagine working for somebody else. I wish my wife understood that."

If the author really is as down and out as he claims to be, I think somebody offering him good money to get his life back on track might be something that is welcome. He can always work for himself once things straighten out.

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