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Do founders set their own salaries? Do they need to be approved by a board/VCs? Do investors have heuristics to help decide if a given founder's salary is appropriate, and not exploitative to boost a founder's lifestyle before a business is truly viable?
Now do dividends and other perks.
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> think founders are paying out of pocket for their fancy SF and NYC apartments at 50k per year This is tax fraud. More realistic: cell phone bills, car expenses and home internet.
It all really depends on your situation and context. Does your company have an office yet? If not it's probably the founder's residence. I've heard of apartments listed as offices in very early days. It's not about committing fraud, it's about working with what you've got. But for sure paying founders a low salary and running everything through the business is a tax-conscious strategy to minimize overall expenses.
And if you tried to claim your entire residence, that would definitely not fly, and would be much more likely to be found out by tax authorities.
There's an interesting blip at the end of the chart "Bootstrapped vs. VC-Backed Salaries Breakdown". Salary Range Bootstrapped VC-Backed -------------- ----------- -------------- 200k-249k 3% 6% 250k-299k 1% 3% 300k+ 6% 2% Overall, I see a pattern that could be explained by slightly different perspectives. A VC-backed founder likely sees themselves working for someone else - "My work will benefit the investors, so I…
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Great suggestion! I think we'll ask this question in the next iteration :)
Yeah actually beyond age I would also break out "Do you have children" explicitly as that changes that calculus a lot.
I think what people often blissfully miss about founder comp is that the business literally supports the founder's entire life. Everything is a business expense. Pay yourself 50k as a little bonus and run almost everything through the business, because if you don't survive, neither does the business. You think founders are paying out of pocket for their fancy SF and NYC apartments at 50k per year living humbly? Think…
> think founders are paying out of pocket for their fancy SF and NYC apartments at 50k per year This is tax fraud. More realistic: cell phone bills, car expenses and home internet.
So as long as the benefit is reported on the founders taxes and taxes are paid, it would not be tax fraud.
There's an interesting blip at the end of the chart "Bootstrapped vs. VC-Backed Salaries Breakdown". Salary Range Bootstrapped VC-Backed -------------- ----------- -------------- 200k-249k 3% 6% 250k-299k 1% 3% 300k+ 6% 2% Overall, I see a pattern that could be explained by slightly different perspectives. A VC-backed founder likely sees themselves working for someone else - "My work will benefit the investors, so I…
Wouldn’t you prefer to take minimum salary and the rest as dividends? Seems like that would be the more tax advantaged approach and fully within your ability to do as majority owner.
Earlier quoted context omitted.
> think founders are paying out of pocket for their fancy SF and NYC apartments at 50k per year This is tax fraud. More realistic: cell phone bills, car expenses and home internet.
It all really depends on your situation and context. Does your company have an office yet? If not it's probably the founder's residence. I've heard of apartments listed as offices in very early days. It's not about committing fraud, it's about working with what you've got. But for sure paying founders a low salary and running everything through the business is a tax-conscious strategy to minimize overall expenses.
https://money.usnews.com/money/personal-finance/taxes/articl...
However, the IRS has very little staff to audit or enforce, you can probably get away with breaking the rules... until you don't.
Earlier quoted context omitted.
It all really depends on your situation and context. Does your company have an office yet? If not it's probably the founder's residence. I've heard of apartments listed as offices in very early days. It's not about committing fraud, it's about working with what you've got. But for sure paying founders a low salary and running everything through the business is a tax-conscious strategy to minimize overall expenses.
The rules around home offices are very strict — it has to be a physical space that is used exclusively for work purposes. Even if it's a guest bedroom that is used mostly for work, but also occasional guests, then it doesn't qualify. That doesn't mean you'd necessarily get caught, but it does mean that it is not allowed. And if you tried to claim your entire residence, that would definitely not fly, and would be much…
I think what people often blissfully miss about founder comp is that the business literally supports the founder's entire life. Everything is a business expense. Pay yourself 50k as a little bonus and run almost everything through the business, because if you don't survive, neither does the business. You think founders are paying out of pocket for their fancy SF and NYC apartments at 50k per year living humbly? Think…
In what situation would a founder have a company with meaningful investor backing and not use that money to pay for an office for employees and instead use it to pay for their rent?
The tone and insinuation of your message is that founders pay themselves $50k/year but then splurge excessively using company funds on "fancy SF and NYC apartments" (which, depending on how fancy you mean, could go for $10-2k/month), which would almost certainly qualify as both tax fraud and fraud against the company. Your edit doesn't really do anything to alleviate the messaging, because you basically say (a) founders often commit fraud (b) ok maybe not, but I'm not erasing my earlier statement.
FWIW when I started a company in SF in 2012, my cofounders and I did indeed pay ourselves $50k/year and pretty much 100% of that money after taxes went to rent and living costs (maybe saved $5k/year, I wasn't keeping track that closely). This was after paying ourselves $0 for a while of course. We did not live in fancy apartments or use a penny of company funds to expense rent or any other personal living costs. In fact, even after we raised $35m for our company, we still only paid ourselves $90k for another couple years.