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The ROI on being an entrepreneur vs. an employee

marcbarros.com

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Re: The ROI on being an entrepreneur vs. an employee

#101

Post by rdl »

acconrad wrote: post #98
rdl wrote: post #19

A VC funded company, assuming you are capable of raising a seed round, can generally pay sfba founders 50-120k for full time work pretty soon after (founding, or people going full-time). Those same people are generally forgoing 100-200k jobs. The equity value of a founder's shares is an order of magnitude higher than an early hire, or two orders higher than a late A or B round hire, and 3-4 orders higher than a pre I…

How is being a consultant tax-optimized?

My personal lifestyle, since I don't have kids (hate them), only really work on tech stuff or closely aligned hobbies like tearing down electronics or photography of electronics, travel only for conferences or to investigate potential work, etc., means that as a consultant virtually all of my outgoing expenditures tend to be fully deductible business expenses. I can buy a new HSM or 10GE NIC or something to figure out how it works as a business expense; that makes it ultimately 50% the cost of paying business/corp tax and then personal income tax and then buying it. This is all fully legal.

Being a 1099 consultant is a bit worse; I've always done the "product company which does a lot of client services as well, and usually with multiple principals" -- which solves the PSC-fucking-of-professionals issue. I think if you're smart you can get a lot of this benefit from 1099.

OTOH, a lot of people don't consider living in a government provided trailer, in hotels, etc. and eating on per diem/DFACs/with clients, only going on trips because there's a client engagement or conference, etc. to be a net win vs. ~30% income tax.

(I am not an attorney; I am not your attorney. I am not an accountant. This is not legal, professional, or financial advice.)

Re: The ROI on being an entrepreneur vs. an employee

#102

Post by ahomescu1 »

rdl wrote: post #70
ChuckMcM wrote: post #64

Earlier quoted context omitted.

I'd like to make a small observation here, $10 - 15MM after taxes is fine. That is where you earn $240K after taxes and fees during a recession , or $20K a month free and clear. You live in a nice single family home that is paid for anywhere in the US, and you spend a lot of time travelling and sight seeing. Or if your more entrepreneurial you spend your time building things, coaching youngsters, collecting old cars…

I'd call that "post economic", but $5-10mm pretax (which is more likely what an employee gets at a Google as an engineer hired before IPO who stays through IPO for 4y) is not enough, after taking care of one's personal expenses, to really fund serious startups. My definition of "rich" is being able to do something (fund businesses) which you fundamentally can't do while earning a salary. You could do that at an extre…

> My definition of "rich" is being able to do something (fund businesses) which you fundamentally can't do while earning a salary.

I think most people have a much simpler definition of "rich": never ever having to work for someone else (employers or customers).

Re: The ROI on being an entrepreneur vs. an employee

#103

Post by jakejake »

snowwrestler wrote: post #83
hluska wrote: post #43

Earlier quoted context omitted.

> Corporations do not pay income tax as such - they do have some filing fee type of taxes, but basically the taxes you pay come out of your payroll. Are you sure that is correct? I am neither an accountant, nor even American, but IRS.gov says: "The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corpor…

S corps pass through profits, which are reported only once, on the owner's personal income tax statement. It avoids the double taxation of a C corporation.

Thank you I neglected to mention I was talking about an S-corporation.

Re: The ROI on being an entrepreneur vs. an employee

#104

Post by jakejake »

curveship wrote: post #47
jakejake wrote: post #37

Earlier quoted context omitted.

(Sorry in advance for this long, rambling response) This applies to the US and forgive me if you have already done some of this. The first step is to get your corporation set up (use an online service or an accountant). It's a bit of paperwork but you can do it for around $400. Once you do that you can open a corporate bank account. At that point you bill your clients as a corporation and provide them with your corpo…

The IRS requires that you pay yourself a defensible fair market salary. If you're paying yourself only $15k, you will quite likely get audited, and unless you can defend the idea that your work is truly minimum-wage level work, you will owe quite a lot in fines. If this is advice from your accountant, I think you need a second opinion. Edit to add citation. Also, I'm assuming you're talking about an S-Corp, since it…

Your tax advice is that if an S-Corporation brought in $80k and incurred $65k of legitimate, legal expenses, that the proprietor should run something more than $15k through payroll because of the "going rate" for developers or for some other reason?

I can't help but notice that your quoted text says "most of the PROFIT distribution" rather than "most of the GROSS INCOME distribution" The company can't pay out more than it brought in.

Obviously if you don't have $65k in expenses then you can't claim them. But, working as a contractor can have a lot of expenses - travel, office rent, utilities, etc. Giant corporations claim these expenses, a single-person company is entitled to the same deductions.

In 15 years of business I have been audited twice by the IRS with very minor amounts due (< $500) and nothing to do with deductions or expenses. The reason I bring it up is simply to illustrate that I'm not just lucky or flying under the radar. One time it was my mistake of a missing payment in my records and I simply paid the amount due. The other time was the IRS's mistake and I successfully contested it. If I had anything to hide I sure as hell would not be contesting an IRS audit for some small amount of money. My point is that I am in no way hiding or trying to sneak around tax codes. I do not encourage anybody to do anything illegal. I only encourage anyone to claim the maximum amount of legitimate deductions that they're entitled to claim. I also highly recommend having an accountant handle it for you who knows the tax laws and ensures that you are operating within them.

Re: The ROI on being an entrepreneur vs. an employee

#105

Post by phlyingpenguin »

hotpockets wrote: post #100
phlyingpenguin wrote: post #79

Earlier quoted context omitted.

As a successfully graduated grad student, I disagree. It is possible, but not at all easy, healthy or sustainable.

I've never seen anyone fail at it?

Fail at being a grad student? Tons of folks do. Grad degrees have a fairly low success rate and living conditions are certainly one of the reasons people drop out or leave early (the case where the student goes for a PhD and leaves after getting a masters). I'm not claiming it's the only reason, but it's certainly on the list.
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