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We got a $60k tax penalty for a zero-revenue side project

news.ycombinator.com

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Re: We got a $60k tax penalty for a zero-revenue side project

#11

Post by lukaslukas »

ramses0 wrote: post #7

I've heard rumors/suggestions that you shouldn't worry too much about things until you have a clear revenue or expense plan that reaches the IRS minimums: https://www.irs.gov/individuals/check-if-you-need-to-file-a-... ie: if you're making $100/mo (talk to your tax advisor), but if you're clearly making $3k+/mo then you should have a plan to incorporate, file taxes, etc. (and should also be talking to your tax adviso…

I agree, and I think we knew that even back then!

However, we thought that starting a company would motivate us because we would be "commited" and this would demonstrate to each other that we were serious about it, given that we all had other jobs. And to this day, I still think it has some meaning.

Re: We got a $60k tax penalty for a zero-revenue side project

#12

Post by ramses0 »

jcattle wrote: post #10
ramses0 wrote: post #7

I've heard rumors/suggestions that you shouldn't worry too much about things until you have a clear revenue or expense plan that reaches the IRS minimums: https://www.irs.gov/individuals/check-if-you-need-to-file-a-... ie: if you're making $100/mo (talk to your tax advisor), but if you're clearly making $3k+/mo then you should have a plan to incorporate, file taxes, etc. (and should also be talking to your tax adviso…

How does that work if your customers want to get a proper invoice?

https://www.invoicesimple.com/invoice-generator (?)

Talk to your tax advisor? https://www.google.com/search?q=business+bank+account+requir... ?

If you're working with a business that wants to be writing checks to a business, then it sounds like you need to have your own business?

...but consider that you have ~$5k/yr "off the table" of your own business expenses, and I'd still stand by the suggestion that you'd want to have a clear revenue or expense plan that gets you to at least the minimum bar of $14.6k (ie: where $5k is 30% of your proposed income) before you get too excited about filing business paperwork.

Re: We got a $60k tax penalty for a zero-revenue side project

#13

Post by mytailorisrich »

lukaslukas wrote: post #4
mytailorisrich wrote: post #3

Once you have incorporated as a company the company has to fill tax returns and possibly accounts. Even if you don't have customers, incorporating allows to file business expenses and to carry losses forward (mileage may vary by jurisdiction).

Well sure :) but we expected to pay a "normal" fine, not $60,000 right away. Especially since we had zero revenue. Today we would do many things differently...

You don't say why you incorporated in the US... Much cheaper to incorportate in the UK, it seems (especially if you include fines and wind down, from what you wrote). I believe that filing tax returns (and accounts) is pretty much an universal requirement, as mentioned, anyway.

Re: We got a $60k tax penalty for a zero-revenue side project

#14

Post by lukaslukas »

mytailorisrich wrote: post #13
lukaslukas wrote: post #4

Earlier quoted context omitted.

Well sure :) but we expected to pay a "normal" fine, not $60,000 right away. Especially since we had zero revenue. Today we would do many things differently...

You don't say why you incorporated in the US... Much cheaper to incorportate in the UK, it seems (especially if you include fines and wind down, from what you wrote). I believe that filing tax returns (and accounts) is pretty much an universal requirement, as mentioned, anyway.

Our target market was US, so US company was the first and only choice.

Re: We got a $60k tax penalty for a zero-revenue side project

#15

Post by pan69 »

lukaslukas wrote: post #4
mytailorisrich wrote: post #3

Once you have incorporated as a company the company has to fill tax returns and possibly accounts. Even if you don't have customers, incorporating allows to file business expenses and to carry losses forward (mileage may vary by jurisdiction).

Well sure :) but we expected to pay a "normal" fine, not $60,000 right away. Especially since we had zero revenue. Today we would do many things differently...

In your post you say:

> "Hey, the federal portal says we owe $60,000 in penalties for not filing a tax return."

That doesn't sound like they're asking you to pay tax on your $0 income business. It sounds like you need to pay a fine for not filing a tax return.

What's a "normal" fine anyway? The point of having a fine being a large sum of money is to create incentive so you to do the thing they want you doing, which you didn't do.

Re: We got a $60k tax penalty for a zero-revenue side project

#16

Post by olalonde »

lukaslukas wrote: post #4
mytailorisrich wrote: post #3

Once you have incorporated as a company the company has to fill tax returns and possibly accounts. Even if you don't have customers, incorporating allows to file business expenses and to carry losses forward (mileage may vary by jurisdiction).

Well sure :) but we expected to pay a "normal" fine, not $60,000 right away. Especially since we had zero revenue. Today we would do many things differently...

Let's say you wouldn't have been able to reduce the fine to $1,500, could you just have closed the company to avoid paying the fine?

Re: We got a $60k tax penalty for a zero-revenue side project

#17

Post by lukaslukas »

olalonde wrote: post #16
lukaslukas wrote: post #4

Earlier quoted context omitted.

Well sure :) but we expected to pay a "normal" fine, not $60,000 right away. Especially since we had zero revenue. Today we would do many things differently...

Let's say you wouldn't have been able to reduce the fine to $1,500, could you just have closed the company to avoid paying the fine?

Good question. We have considered all options. But the company cannot be officially closed without paying all taxes/fines, etc.

At the same time, with a C corp, only the company itself is liable for taxes and fines, not its founders. If a company does not have sufficient funds, it cannot operate, and there is a process for automatically dissolving the company (after several years, if you have no outstanding obligations to third parties, no fraud intentions, etc.). We didn't want to do this and be left with an unpaid bill in our minds.

Re: We got a $60k tax penalty for a zero-revenue side project

#18

Post by lukaslukas »

pan69 wrote: post #15
lukaslukas wrote: post #4

Earlier quoted context omitted.

Well sure :) but we expected to pay a "normal" fine, not $60,000 right away. Especially since we had zero revenue. Today we would do many things differently...

In your post you say: > "Hey, the federal portal says we owe $60,000 in penalties for not filing a tax return." That doesn't sound like they're asking you to pay tax on your $0 income business. It sounds like you need to pay a fine for not filing a tax return. What's a "normal" fine anyway? The point of having a fine being a large sum of money is to create incentive so you to do the thing they want you doing, which y…

When we logged into the tax portal, only this amount was shown as to pay. Terrible UX.

In fact, the fine was actually what we paid (minimum tax + missed deadline + interest).

“Normal fine”: We just didn't expect you to be able to incorporate a company and if you miss the tax payment deadline, you will receive a fine 100 times higher than the cost of incorporating the company, no matter what.

But of course, I don't recommend our way. Don't do it. It was wrong. Pay your taxes. Fill out all the required documents.

Re: We got a $60k tax penalty for a zero-revenue side project

#19

Post by cloudflare728 »

bluesmoon wrote: post #8
lukaslukas wrote: post #6

Earlier quoted context omitted.

C corp in Delaware

Go with S-corp.

Seems like big no-no.

>The big reason why C corps are preferable is because S corporation shareholders can only be people -- not other businesses, like VC firms. (S corps also can't issue preferred stock.) An S corporation can't take venture capital without first reverting back to C corp status. But an S corporation can save a lot of money on taxes

https://news.ycombinator.com/item?id=13784

Re: We got a $60k tax penalty for a zero-revenue side project

#20

Post by phonon »

lukaslukas wrote: post #18
pan69 wrote: post #15

Earlier quoted context omitted.

In your post you say: > "Hey, the federal portal says we owe $60,000 in penalties for not filing a tax return." That doesn't sound like they're asking you to pay tax on your $0 income business. It sounds like you need to pay a fine for not filing a tax return. What's a "normal" fine anyway? The point of having a fine being a large sum of money is to create incentive so you to do the thing they want you doing, which y…

When we logged into the tax portal, only this amount was shown as to pay. Terrible UX. In fact, the fine was actually what we paid (minimum tax + missed deadline + interest). “Normal fine”: We just didn't expect you to be able to incorporate a company and if you miss the tax payment deadline, you will receive a fine 100 times higher than the cost of incorporating the company, no matter what. But of course, I don't re…

Are you sure this was the Federal tax portal, and not the Delaware Franchise tax? As far as I know, only the latter defaults to a "scary" tax calculation based on number of shares (but you can easily switch it to the Assumed Par Value Capital Method based calculation, which would be $400 in total for you, assuming you filed on time). Federal taxes should be $0 if you had no profits.
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