I'm the solo founder of a Delaware C Corp that has no income/net income. Just incorporated but got confused by the information all around.
Looking for advice here.
Since I still have a 9-5 job (yes I know I know..but have a family to feed), adding payroll to the Corporation that has no profit doesn't make sense to me tax wise.
Is there any issue (law/tax, etc) if I don't pay myself a salary from the corp? When do founders in similar situation usually add themselves to payroll?
Thank you in advance for replying.
Should I pay salary to myself as the founder of a C Corp that makes no money?
1–10 of 12 posts
Re: Should I pay salary to myself as the founder of a C Corp that makes no money?
#2How would a company with no income or capital pay anyone a salary? If there’s no money there’s no salary.
If you form a company with your own capital and pay yourself back from that to avoid taxes the IRS will probably not like it.
Re: Should I pay salary to myself as the founder of a C Corp that makes no money?
#3I know you are probably trying to do this without hiring an attorney/accountant, but please go talk to at least an accountant and pay for a few hours of their time. There are ways to do this so that it works to your advantage tax wise and keeps everything on the up and up. However, done wrong you can screw yourself considerably and wind up with an unplanned tax liability on yourself, the corp or both. And what state your are in matters to this as well.
On that note, hopefully you registered in your operating/home state already too and got all that out of the way as that is another pain point a lot of people miss early on when they register a Delaware corp. Frankly, unless you plan to take a VC based round soon the Delaware corp is really a liability for new solo founders just starting out. If you are bootstrapping it is almost always more simple, faster, easier and less prone to issues to manage a state based LLC or S Corp that you setup with the proper structure to support moving it to a C corp later. Talking to an attorney and/or accountant makes all this so much easier and prevents you from winding up on the wrong side of an equation unintentionally and unexpectedly.
You don't need to spend tons of money, but get some advice from an accountant and/or an attorney on these things to make sure you don't wind up spending $10k in liabilities to save $1k in fees.
Re: Should I pay salary to myself as the founder of a C Corp that makes no money?
#4How would a company with no income or capital pay anyone a salary? If there’s no money there’s no salary. If you form a company with your own capital and pay yourself back from that to avoid taxes the IRS will probably not like it.
The assumption and question presented here is exactly why the OP should speak to an accountant.
Re: Should I pay salary to myself as the founder of a C Corp that makes no money?
#5I'm no accountant. We paid ourselves a salary after about 3 years, when there was enough income. During the first 3 years we funded the business and had losses on our personal returns (no other employment). You can carry those losses forward and use them when you start making money, either by paying yourself a salary or taking a dividend, or you can do a Roth conversion in the years you have a loss: converting pre-tax IRA funds to post-tax Roth IRA, thus generating income to offset the losses.
I agree with other comments that you should consult with a lawyer and accountant about Delaware, C vs LLC vs S, and your other questions. For a sole founder, I think an accountant is more important than a lawyer. For multiple founders, a lawyer is important to lay out the terms of a founder leaving while you are all still on good terms.
Re: Should I pay salary to myself as the founder of a C Corp that makes no money?
#6Short answer, no. I'm an accounting student. As others have said, it might behoove you to check in with an accountant. Paying yourself through a company that doesn't make any money isn't likely to work. I'll check up on my sources and see what would happen if you did pay yourself a salary. I think you'd just pay taxes on it or it might just qualify as a return on capital if it's just your money.
Re: Should I pay salary to myself as the founder of a C Corp that makes no money?
#7I know you are probably trying to do this without hiring an attorney/accountant, but please go talk to at least an accountant and pay for a few hours of their time. There are ways to do this so that it works to your advantage tax wise and keeps everything on the up and up. However, done wrong you can screw yourself considerably and wind up with an unplanned tax liability on yourself, the corp or both. And what state…
Yes, I did foreign qualification in my home state right after incorporation.
I'm bootstrapping it but took the Delaware C Corp approach mainly because of the potential QSBS exit. Thanks for the advice.
Re: Should I pay salary to myself as the founder of a C Corp that makes no money?
#8Short answer, no. I'm an accounting student. As others have said, it might behoove you to check in with an accountant. Paying yourself through a company that doesn't make any money isn't likely to work. I'll check up on my sources and see what would happen if you did pay yourself a salary. I think you'd just pay taxes on it or it might just qualify as a return on capital if it's just your money.
Yes, it's 100% my own money. It seems my question was perceived in an unintended way - Why I'm asking here is because I don't want to pay a salary to myself and get double taxed, unless there is some legal/tax requirement that prevents me from working on growing the company without a salary. Thanks for the short answer.
Re: Should I pay salary to myself as the founder of a C Corp that makes no money?
#9I'm no accountant. We paid ourselves a salary after about 3 years, when there was enough income. During the first 3 years we funded the business and had losses on our personal returns (no other employment). You can carry those losses forward and use them when you start making money, either by paying yourself a salary or taking a dividend, or you can do a Roth conversion in the years you have a loss: converting pre-ta…
Thanks a lot for the pragmatic advice!
Re: Should I pay salary to myself as the founder of a C Corp that makes no money?
#10I know you are probably trying to do this without hiring an attorney/accountant, but please go talk to at least an accountant and pay for a few hours of their time. There are ways to do this so that it works to your advantage tax wise and keeps everything on the up and up. However, done wrong you can screw yourself considerably and wind up with an unplanned tax liability on yourself, the corp or both. And what state…
Yes, I did foreign qualification in my home state right after incorporation. I'm bootstrapping it but took the Delaware C Corp approach mainly because of the potential QSBS exit. Thanks for the advice.
Cool, sounds like congrats are in order first as you had a qualifying event you are rolling over. Given that, I'd double down on the accountant (attorney not very important IMO in this situation) just cause it is easy to screw these up. I've done this both in real-estate (similar type of program and rules) and corp (though primarily real-estate). The process is easy on the face of it but requires quite a bit of tracking and reporting to do it properly.
I'd say in your situation, no, the salary isn't important and in fact may work against you tax wise. But you'll have to make sure the corp is doing a real business as there are some rules around parking, though I am not an accountant or attorney so my understanding may be incorrect. Good luck!