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I surveyed 500 startup founders about their salaries

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Re: I surveyed 500 startup founders about their salaries

#71

Post by rexreed »

pclmulqdq wrote: post #52
Swizec wrote: post #47

Earlier quoted context omitted.

> If my bootstrapped company is earning 10M/yr, you bet I'm taking 1M+ salary guilt-free. 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.

Once your company is earning $10M/year, you should probably be using debt instruments instead, and paying yourself enough salary to cover the interest. That gives you a real tax rate on your cash earnings under 10% (and capped at the LTCG rate) if you can get a decent valuation.

Can you provide some more detail or where to read on this debt instrument strategy?

Re: I surveyed 500 startup founders about their salaries

#72

Post by jefftk »

jrochkind1 wrote: post #49
gnicholas wrote: post #43

Earlier quoted context omitted.

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 believe you also have to be self-employed now. Which possibly some but not all founders would qualify as.

Yes: there's a weird temporary limitation on this until 2025.

The home office deduction is available to qualifying self-employed taxpayers, independent contractors and those working in the gig economy. However, the Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home.

https://www.irs.gov/newsroom/irs-reminds-taxpayers-of-the-ho...

Re: I surveyed 500 startup founders about their salaries

#73

Post by Ancapistani »

toomuchtodo wrote: post #45
jsonne wrote: post #40

Earlier quoted context omitted.

Yeah actually beyond age I would also break out "Do you have children" explicitly as that changes that calculus a lot.

Additional potential questions: Does your spouse or coparent have an income? Do you have a mortgage and what is the monthly amount? Do you support an elderly parent?

Agreed.

I’m married with two children, and my spouse effectively[1] doesn’t earn an income. I’d consider running a startup, but my life situation requires that I have a reasonably steady annual income of ~$125k.

That doesn’t mean I have a lower risk tolerance, or at least not exactly. It means I have a higher risk floor that I had fifteen years ago.

[1]: they have a small business that I’d reasonably say is their life’s work. Because of my income they don’t have to make it a steadily profitable business and can therefore reinvest the profit it produces. It’s a business serving children and is parts of the burgeoning local arts community. It’s very helpful to be able to waive fees and offer small scholarships for children in our area, where the median family annual income is <$30k. It’s also been a blessing to be able to hire teenage students from time to time; more than once that’s turned an extracurricular activity that the kid is passionate about from a cost to a small source of income for a family of very limited means./

Re: I surveyed 500 startup founders about their salaries

#74

Post by triceratops »

dcow wrote: post #4

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…

Relevant Seinfeld: https://www.youtube.com/watch?v=XEL65gywwHQ

Re: I surveyed 500 startup founders about their salaries

#75

Post by gamblor956 »

hn_throwaway_99 wrote: post #27
JumpCrisscross wrote: post #16

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.

Not really. There are tons of gray areas: 1. First, it's perfectly legal for an employer to pay for housing, but it may be counted as income to an employee. It depends: https://www.corporatehousing.com/blog/corporate-housing-tax-... 2. The IRS also allows deductions for a home office. The rules about this are pretty strict, but again, there are gray areas here about what counts as an office.

And by "tons of gray areas" you actually mean "a laser-sharp line between what is allowed and what is not."

A founder using the company to pay for their own housing is subject to income tax on the value of the housing provided. Full stop. There are no defensible situations that will survive a tax audit in which the founder gets away with using the startup to pay for their housing without getting taxed on it.

And the IRS no longer allows a deduction for home offices for employees, and won't allow this deduction again until 2025. The home office deduction is strictly for those running a separate business out of their home, and may only be used to offset income reported on the return from that separate business.

Re: I surveyed 500 startup founders about their salaries

#76

Post by lfranchi »

Hi HN! I'm Leo, Pilot's Head of Engineering, and we're hiring across the board for engineers, product designers, product managers, and more.

If you want to come work for a growing startup that's selling a service that every business needs (a good thing in a macroeconomic downturn!), with a wonderful, diverse team that cares about their users and each other -- I'd love to chat. Feel free to reach out :)

(Hiring in SF and US-remote. Full jobs page here: https://pilot.com/jobs, or feel free to email me at firstname @pilot.com. Our stack is fully typed Python 3.10 on the backend, Vue/TS on the frontend, and AWS)

Re: I surveyed 500 startup founders about their salaries

#77

Post by earth_walker »

yrgulation wrote: post #68
scient wrote: post #61

Earlier quoted context omitted.

If the company is not public, there are no dividends. Crazy that stuff like this needs to be explained on a tech site.

I am pretty sure in europe there are. Crazy that stuff like diversity among countries has to be explained on a tech site.

Here in Canada private companies can and do pay dividends to their shareholders.

Re: I surveyed 500 startup founders about their salaries

#78

Post by tobyjsullivan »

Swizec wrote: post #47
tobyjsullivan wrote: post #30

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…

> If my bootstrapped company is earning 10M/yr, you bet I'm taking 1M+ salary guilt-free. 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.

Good point. I guess I assumed it wasn't incorporated which would be silly (though probably not uncommon for solo founder)

Re: I surveyed 500 startup founders about their salaries

#79

Post by gamblor956 »

jrochkind1 wrote: post #48
dcow wrote: post #26

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 IRS does not really agree. Home office expenses got quite a bit stricter a few years ago, and even before that expensing your entire apartment because you worked out of it was probably not technically allowed. 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.

Note that if someone get caught doing this, the IRS can and will open other additional tax years for examination.

The statute of limitations is currently 3 years from when the return is filed, 6 years if the deficiency (between the reported amount and the tax calculated due by the IRS) is 25% or more and the disparity is unintentional or the result of good faith efforts by the taxpayer to report their liability.

However, if a deficiency is deliberate, there is no statute of limitations on how far back the IRS can go to audit the tax year and assess penalties (and possibly also refer to the DOJ for criminal charges).

Re: I surveyed 500 startup founders about their salaries

#80

Post by Swizec »

rexreed wrote: post #71
pclmulqdq wrote: post #52

Earlier quoted context omitted.

Once your company is earning $10M/year, you should probably be using debt instruments instead, and paying yourself enough salary to cover the interest. That gives you a real tax rate on your cash earnings under 10% (and capped at the LTCG rate) if you can get a decent valuation.

Can you provide some more detail or where to read on this debt instrument strategy?

You can use anything as collateral for a loan, even business equity. It’s how wealthy people get liquidity without selling assets.

A HELOC loan would be a pedestrian example of this. You put house equity up as collateral to get money without selling the house. Fail to pay, bank sells house. When using your business as collateral, bank sells business.

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