Mistakes You Should Never Make • Hacker News Board

Re: Mistakes You Should Never Make

#151

Post by forgottenpass » Thu, Jul 24, 2014, 7:24 PM UTC

seancoleman wrote: post #70

dreamweapon wrote: post #21

Mistake 1: Taxes This thing about not noticing that you weren't paying payroll taxes wasn't a "mistake." It was pure head-in-assery. How can you "miss" the fact that you weren't being subtracted for payroll taxes? One quarterly / annual review after another, for 3 years? It's like running a personal budget, and "missing" the fact that you aren't paying rent.

Founders get bombarded with many corporate taxes they are often unfamiliar with. As a founder, it's not inconceivable to think all the proper taxes are being paid when one slips through the cracks.

OK. But why are these founders so arrogant and pennypinching that they don't just contract or hire someone to do this for them?

Re: Mistakes You Should Never Make

#152

Post by forgottenpass » Thu, Jul 24, 2014, 7:25 PM UTC

dreamweapon wrote: post #55

gatehouse wrote: post #45

Earlier quoted context omitted.

It boils down to not having a handle on the general ledger, which if not suicide is at least reckless self-endangerment. But I think it is plausible for someone who is administrativaphobic. But there is a reason this is mistake #1 .

Or on another, much deeper level it boils down to: "OMG look we're so HAWT, we're co-founders after all, not gutless employees, and we're only in our 20s, doing all these amazing things, and we have this cool office and all these smart, hip people working for us.. and umm, budgets? due diligence? CPAs? What are those?"

Woah, slow down there bud. You're not allowed to have negative opinions on anything a entrepreneur does on Hacker News.

Re: Mistakes You Should Never Make

#153

Post by tptacek » Thu, Jul 24, 2014, 7:26 PM UTC

bravo22 wrote: post #145

tptacek wrote: post #79

Earlier quoted context omitted.

It's a hack, and it's also unfair. S-corp company owners get to inhabit a very small part of the economy that, due to a loophole, gets a dial that turns some of their liquid compensation from "salary" to "investment income". That's baloney. I'm glad it's an audit flag.

Actually as an S-Corp owner all the corporate income is taxed as REGULAR INCOME. It doesn't become a capital gains tax -- which is what I assume you mean by investment income. However the US government wants you to also pay Social Security and Medicare tax, which you only pay on employment income. Therefore they force you to take a "reasonable"[1] salary from the company. Everything else left in the company's account…

It's taxed as regular income, but the premise under which it's exempt from the payroll taxes every other worker has to pay is that it's not normal income, but rather the return from an investment in the company.

For people in our industry, it's hard to see a definition of "reasonable" that would be financially beneficial. You start a tech company. You pull $100k out every year, putting you right smack in the middle of the income distribution for experienced tech people. But because of a loophole, you get to reclassify $50k of that $100k as a distribution, and not pay FICA on it. To support that (sorry) scam, you claim $50k is your "reasonable" salary --- putting you way on the low side of the industry. How convenient.

People obviously do it and get away with it. I'm glad it's an audit flag.

Re: Mistakes You Should Never Make

#154

Post by swombat » Thu, Jul 24, 2014, 7:28 PM UTC

tptacek wrote: post #146

swombat wrote: post #143

Earlier quoted context omitted.

It's not much of a problem in the UK. A great many of our clients (and ourselves) use the standard dividends + minimum wage method of paying themselves - that is, the ones who own their businesses, i.e. have not taken funding. HMRC accepts this method as a way for business owners to minimise their taxes. As I recall, the argument is something along the lines of "I am paying myself a salary for the basic director duti…

I've never had an unpleasant interaction with the IRS. Unlike virtually any other creditor I've ever dealt with, the people I've talked to who actually work for the IRS have been courteous and helpful. I'm not the only person who's said this. The IRS has acquired a personalized reputation for being jerks, not unlike that of Customs, but which totally doesn't square with how the agency actually acts. I say this as som…

Well, that's good to hear! This reputation the IRS has makes me worried about the idea of some day operating in the US. It's good to know that they actually employ human beings rather than attack dogs.

From what you describe, they sound much like HMRC.

And yes, withholding payroll tax (or VAT) and not passing it on to the government is pretty crappy. HMRC is typically understanding if this is a few months or even a year down the line and they think the business will be able to pay up - they frequently agree payment plans for such things - but three years without noticing kinda takes the piss.

Re: Mistakes You Should Never Make

#155

Post by tomp » Thu, Jul 24, 2014, 7:33 PM UTC

pjungwir wrote: post #125

tomp wrote: post #82

Can someone clarify why dropping out of Harvard Extension School is a subset of dropping out of Harvard University? I checked out Wikipedia, but it's not very clear about Harvard's system and the different colleges (Harvard College, Radcliff College, Extension School, ...) I've always assumed there was just one "University of Harvard", but apparently it's more complicated...

Harvard Extension School is an adult education program, like night classes. Your teachers may be Harvard faculty (but never were in the 7 classes I took there), and the other students are not Harvard undergrads. Also there is no application: they take anyone with a credit card. (There may be an application if you want to earn a degree rather than just take desultory classes; I don't know.) That's all not to say the c…

So what does "getting into Harvard" mean - getting into Harvard College? What about the rest of colleges besides Harvard College and Extension School?

Re: Mistakes You Should Never Make

#156

Post by sbisker » Thu, Jul 24, 2014, 7:38 PM UTC

SilasX wrote: post #24

dreamweapon wrote: post #21

Mistake 1: Taxes This thing about not noticing that you weren't paying payroll taxes wasn't a "mistake." It was pure head-in-assery. How can you "miss" the fact that you weren't being subtracted for payroll taxes? One quarterly / annual review after another, for 3 years? It's like running a personal budget, and "missing" the fact that you aren't paying rent.

Except that if you miss paying rent, they let you know, and quickly.

Rent, sure, but many other personal responsibilities are not so kind - especially from vendors who can legally tack on cumulative late fees.

Try not paying your Comcast or Verizon bill on time for a month or two and see what happens. The envelope only starts coming in red after quite a few fees are tacked on.

[EDIT: Don't actually try that :) ]

Re: Mistakes You Should Never Make

#157

Post by mynewwork » Thu, Jul 24, 2014, 7:38 PM UTC

will_brown wrote: post #75

tptacek wrote: post #33

Of all the financial mistakes you can possibly make running a company, withholding payroll taxes and then failing to remit them is probably the worst. Be thankful you caught this before the liability exceeded your available funds, because company operators are apparently routinely held personally liable when there's a shortfall, and I'm not sure that debt is even dischargeable in bankruptcy. What's worse, minor versi…

As a former transactional/commercial litigation attorney I too would see this issue regularly. One interesting "hack" I would see clients do regularly as owner/employees, they would minimize their own salary to avoid payroll taxes, maximizing their distributions (distributions are not subject to payroll taxes). Unfortunately for them the IRS accounts for this hack , and if an IRS audit finds the salary isn't reasonab…

There are multiple very large public companies in the US which boast that their CEO earns a salary of only $1. See: http://en.wikipedia.org/wiki/One-dollar_salary

Is there some difference between the type of corporation which makes it acceptable, or could the IRS potentially go after all of those individuals?

Re: Mistakes You Should Never Make

#158

Post by xcubed » Thu, Jul 24, 2014, 7:41 PM UTC

This is just awful. There's owning up to mistakes, which is very "trendy" right now, and then there's being a straight up terrible, unethical, incompetent person. It's a bit gross to reference Ben Horowitz, to try to make this seem like a "classic" startup moment that every startup goes through. E.g., "most companies go through at least two, and sometimes over a dozen WFIOs in their lifetime."

1. "And so I learned that we hadn’t been paying payroll taxes for almost 3 years – a particularly painful thing given I believe in taxes as a means of giving back to society." It's weird and manipulative to throw in how much you believe in giving back to society here. You majorly screwed up oversight of how investment money was being spent to not notice the difference in financials given no taxes were being paid!

"This hurt even more because I’d been paying myself one of the lowest salaries on the team to maximize our runway and support our mission." Again, you're the founder. If you're going to make that statement, at least include that you have a much larger equity stake in the company - you're not sacrificing yourself completely!

2. "Mistake 3: Not being explicit about hacks" should be re-written, "Being Dishonest." Cloaking the language as "hacks" and again referencing PG to make your behavior acceptable - (he says it's ok, it's just really a grey area!)

3. "Mistake 7: Telling a half-truth" should be called "lying." If you still think it's a half-truth, you have NOT learned your lesson. It's not "rule bending." Everyone knows that when you say you dropped out of Harvard, the assumption is that you were some form of degree earning student. Seriously, it wasn't a half-truth if the people you're talking to were assuming something else - it was a lie.

Lastly, NOWHERE do I see remorse for the lives of your employees who you laid off. These people trusted and believed in you, and you let them down. Did these people find new jobs? Did you help them find new jobs? How did you structure their layoff packages? Are any still struggling? Were you able to support their next career moves in some way if not monetarily? Not really mentioned, which suggests you don't really care. You're much more focused on you.

Re: Mistakes You Should Never Make

#159

Post by larrys » Thu, Jul 24, 2014, 7:44 PM UTC

matwood wrote: post #108

ChuckMcM wrote: post #88

That had to be a tough article to write, thanks Seth. The thing that really stuck with me is the 'technically true' aspects. Growing up in various places around the world I encountered a number of people for whom their motto was 'its only illegal if you get caught!' The advantages of this motto were very apparent as a teen, you could run a stop light at 11:30pm, there was hardly anyone around, and you could be home b…

Interesting about your grandfather. Mine taught me a similar integrity lesson when I was a kid. Back when there were payphones I would always check them for spare quarters. One time when I was with my grandfather I checked a phone that has broken and dumped ~ $6 in change out. I pulled all the money out super excited about my find. He explained it wasn't mine and when we got home he mailed the local phone a check for…

"I asked him about his unwillingness to do what others have done (at the time it was drive faster than the speed limit on an empty road) "

The above (parent comment) as well as your comment "I pulled all the money out super excited about my find. He explained it wasn't mine" ... well, I can't agree that it teaches the proper lesson, even to a child.

Forgetting whether he is even right "it isn't yours" (I could argue against this) I think that's exactly the type of rigidity that teaches someone not to appreciate the nuance that you need to actually make real decisions in life. It just teaches black and white and unfortunately things aren't typically black and white.

I'm reminded of a time on "The Apprentice" where a candidate who was favored by Trump told him something claiming to be honest and thinking it was going to get him ahead and instead Trump "fired him". Forgetting we are talking about a TV show here (and obvious drama) life is full of nuances which you have to navigate. Being "too" honest can also send a message that you are not flexible and willing to consider the circumstances.

As far as "drive faster than the speed limit on an empty road" (the parent comment) the devil is in the details. Driving 56 in a 55 mile per hour zone is not a problem. In fact driving 60 isn't and at least where I live 65 isn't either. Cops typically never give tickets without some slack. And there is a reason for that.

If I interviewed someone and they claimed to not drive over the speed limit I wouldn't give any bonus points for that I'd actually take points away.

To me (and with all due respect to the parent commenters grandfather) when I hear things like this I think something is trying to prove honesty a bit to much and (once again not to imply the parent commenters grandfather is such a person) that is the type of person I actually watch out for sometimes.

Re: Mistakes You Should Never Make

#160

Post by aidenn0 » Thu, Jul 24, 2014, 7:47 PM UTC

SheepSlapper wrote: post #20

octo_t wrote: post #12

Earlier quoted context omitted.

This is incredibly common behaviour amongst sales people. Or what is also common is 'oh, funny you should mention that, we have a team working on that feature as we speak'. 90% of the time it is fine, contracts tend to be organised for several months in advance, long enough for you to get a feature in place.

As a developer, I've been on the receiving end of "we promised the client we could do this, and they've already paid us, so get to it" more times than I can count... it's my least favorite salesman trait, by far.

That's not even remotely my least favorite, as at least salespeople who overpromise too much tend to get caught out.

My least favorite is salespeople who give product away for free (including the support thereof), hurting the bottom line, since their commission is on gross.