Offer HN: Tax Help for Startup Entrepreneurs. | Hacker News Reader

Offer HN: Tax Help for Startup Entrepreneurs.

97 pointscamz75 comments

With everyone offering their services, I felt that I should put my hat into the ring too.

Background: I'm a tax accountant with years of experience in PwC and KPMG (Big 4: look them up and you'll quickly see they're like the google and microsoft of accounting firms.)

I've had experience in federal tax specializing in REITs and real estate tax at PwC. I specialized in state and local taxation at KPMG.

Federal work related to 1120, 1065 and Disregarded Single-Member LLCs

State and Local: Income/Franchise, Sales, Payroll, VAT and Unclaimed Property

I currently have my own firm where I work with small to midsize clients.

You can pretty much ask me anything you’d like about tax. I’ll be pretty honest with you and let you know if I’m out of my depth. If you have any questions you can check me out at www.thekenggroup.com and contact me at contact@thekenggroup.com or just reply.

Cheers

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Speaking of offers of assistance, if any (US citizen, non-felon, responsible, fairly competent, preferably either prior service or at least compatible with the military in terms of putting up with bureaucracy) wants help getting into DoD contracting (sysadmin or development), I'd be happy to provide advice. I'm no longer actively contracting, but working on a tech company which will have DoD clients, but I still know a lot of people. Deployed or stateside. ryan.lackey@gmail.com.

Slightly off topic, but seems as good a place to ask. How hard is it for foreigners (read Canada) to get a DoD or one of the big military contractor gigs?

Wanting to get into aerospace (any part of it) here, and Canada's aerospace industry isn't exactly big. Being barred from US Mil aerospace seems like having another big glob of jobs put out of reach. Thanks!

I really have no idea on Canadians; you certainly are limited, and I think the standard solution here is to get a Canadian clearance and then use the bilateral canada/us or NATO matching to participate. Sorry!

I think it'd be useful if you'd explain to folks on HN the tax implications of exercising their options (or holding shares) of their company stock over a 5-10 year period as it increases in value but not in liquidity.

For example, someone with stock purchased at $0.01/share that has a new 409A common stock value of $1.00/share may have a substantial tax consequence, despite not having any actual liquidity. You can discuss this better than I can.

Stock options are a loaded question but I’ll discuss it in general terms.

There are two types of stock options. Qualified and Non-Qualified.

Qualified stock options are those given to employees. So, all of the first employee hires that get equity are essentially going to get qualified stock options because they are getting an incentive. These options are not included in your gross income, but you may have to pay taxes on the year you exercise them due to the Alternative Minimum Tax (this was meant to be a tax on the rich back in the 1970s but now its hitting everyone in the middle-class).

Non-qualified stock options are those that you get if you’re not an employee generally. This means that you’d have to include the value of stock options in your gross income. This is where Section 409a hits you. Section 409a has a bunch of requirements as to when you are allowed the options for example:

1. The employee’s leaves or separates from the company (if you're a key employee, then you need to wait 6 months later, before you can get the distribution of options.) 2. The employee has an unforeseeable emergency 3. The employee becomes disabled 4. The employee is dead 5. A fixed time or schedule specified under the plan 6. A change in ownership or effective control of the corporation, or a change in the ownership of a substantial portion of the assets of the corporation; or

In reality…

If you’re a startup and you’re giving options, there’s no way for the IRS to make you include these options in your income because they have no real value yet. The IRS requires income to be (1) accurately determinable and (2) reasonable assured. As we all know, options and common stock equity in startups is anything but determinable and assured. So realistically, this won’t make a difference initially. But, once you start getting traction and get valued from VCs, this will come back to bite you.

You could also choose to use a variety of valuation models. There's even a "startup model." The startup model is basically where the VC thats funding you will tell you what the valuation is lol.

Conclusion: Stock options are not part of gross income if your getting qualified stock options.

But, later on when you sell the stock or equity. It'll lead to capitals gains. By then, you'd probably of had the equity for over a year so they'd be long term capital gains, which are taxed at 15%.

sorry for the long post. its late and i'm probably babbling.

What's a simple tax tip you give individual small business owners (sole proprietors or disregarded single-member LLCs) to reduce their tax burden, beyond simply claiming all business expenses? Once past the phase-out point for most tax credits, any easy tips to reduce taxes further -- perhaps a good place to invest savings without low income limits or an often overlooked deduction?

I usually end up paying taxes on the full amount of my business's profit, and I don't really know what else I can be doing. I was once told to get a Roth IRA but the income limits are too low.

You should look again at Roth IRAs. Income limits were lifted this year, and you might be able to convert to one or start one now.

http://www.schwab.com/public/schwab/research_strategies/mark...

Why not look into SEP, simplified employee pension plans. The limitation for last year and this year is $49,000. You sound rich lol, so why not just get this plan and start socking away money. You can put up to the lesser of 25% of wage income or 20% of self-employed before self-employed tax deduction is included (turns out to be about 18.25%)

Other options depends on what you're income is. But SEPs are great ways to just shove massive amounts of money away.

Note: If you have employees, the SEP can get a bit annoying and complicated. Its best for the small business owner that is operating primarily on his own. but, it could still be a great idea, even if you have employees.

1) Which states are preferable in terms of tax in a start-up? If there is any states of particular preference at all.

2) My impression seems to be that registering your company in Delaware is more of a priority "down the line", even though it seems to be the go-to place for many companies. Is Delaware the place to go, or what is the current wisdom?

3) If I move from a European country to the US, should I expect to be taxed by the country where I spend more than six months a year, or are there things to look out for such as the risk of double taxation?

We'll I don't think tax is a good idea to base your decisions for a startup. There's a saying that the tail wags the dog. Your business is the dog and tax is the tail. California state is almost as disgusting as New York when it comes to how aggressive, how many taxes they have and how high their tax rates are. BUT, Silicon Valley, Cali is where your startup is probably going to get its funding so you sorta dont really have a choice in where to start.

Starting a company in Delaware isn't something that you need to worry about. Incorporating in Delaware is for their caselaw. Delaware has a VERY clear line of cases where they break everyone detail down to its minuet detail so that when you get sued, the lawyer is very clear as to your options and likely outcomes. Also, very important is that Delaware has pro-majority ownership rules. Delaware gives the majority owner of the company extensive authorities on what they're allowed to do. Other states will be less pro-business and protect the minority interest, thus limiting the power of the majority owner.

The united states is special. From my knowledge thusfar, i think the US is the ONLY country that taxes your worldwide income. Other countries wont tax income earned elsewhere. If you live in the US, then you'd pay taxes on your US income. But, if you become a resident of the US, then the US might try taxing your worldwide income too! lol. I'd say that there's a higher change of you paying double taxation in state tax than federal tax.

The Philippines also tax worldwide income. I think they and the US are the only which ALWAYS tax all worldwide income of their citizens/permanent residents.

Actually, a lot of countries tax worldwide income if you are resident in the country; it's just that there is a procedure to establish non-residence (e.g. for Canadians who are outside Canada for a certain number of months/years, or UK people), and then they are not liable to tax. A lot of other countries only tax some people on worldwide income (e.g. not taxing foreign income of new citizens in New Zealand for like 4 years), and others never tax foreign income.

International tax law is a constantly shifting swamp of lameness.

(there's also the Foreign Earned Income Exemption (around the first $92k/yr of income); i.e. why I have been on vacation for Q3/Q4 2010; it saved me more money to remain outside the US and work on my startup part-time while SCUBA diving and exploring Asia, than returning to the USA mid-year).

I agree, international tax is constantly shift because the economy is shifting away from being isolated to individual citizens.

I'm not surprised that the Phillipines have the same tax rules as the united states since they were held by the US for so long.

But, I stand corrected. I should've been clearer and spoken less in general terms in my definition of how world wide income is taxed in the US.

1) The state where you are physically going to be present is going to want to tax you. If you incorporate in DE (zero tax basically, some fees and such), but are physically running the business from San Francisco, you owe the CA Franchise Tax Board all income tax.

2) DE is basically the correct choice (and C Corp) if you plan to take outside professional investment, maybe sell the corp, etc. And doing it properly will cost about $5-10k; probably closer to $10k if some of the principals are non-US-Citizens.

For any other business, you could consider C or S corp or LLC in your state-of-intended-operation, to lower costs and hassle (so you only have to file with one state). If you base yourself in Nevada, you pay no tax and cheap filing costs; if you base yourself in NYC, ouch.

Of the "startup friendly states", I think TX and WA have the best tax situations, but both have a weird corp tax (basically, on your gross receipts, vs. profits), which can actually be worse for an R&D intensive business (negative profits for a while) or a low-margin business).

3) This depends on the specific country you're moving from (i.e. where you hold citizenship), the visa you're on in the US (if you're not a US citizen), etc. There are pairwise double taxation agreements between countries, and I think some EU-USA stuff. It also depends on the kind of earnings you have -- if it's wage income, for work performed above-board in the US, you'll be paying US taxes + medicare/social security, and probably crediting that against your possibly-higher foreign-citizenship taxes. If it's capital gains, it depends on where you are when you realize them, and what visa, etc. you have. It's complex.

I think that RDL is giving valid and valuable advice. Generally speaking WA and TX has no income tax for personal and businesses, but the gross receipts is almost always going to hurt more than the average income tax because of the huge tax base.

For example, if your selling ads and your only making a margin of 30 to 10 percent. The base of your gross receipts is going to include the full amount and not just your cut of the profit.

Texas is known for having some of the worst gross receipts taxes. Michigan GRT and BRT as well as the Ohio CAT are horrible. So beware of those pitfalls.

But, again I think you should definitely head RDLs advice!

This seems likely to be a common situtation so I'll keep it out in the open for other people to read.

I'm based in New Zealand and do my accounts here. I rent virtual machines in the US which run websites etc. NZ and US have some kind of dual tax agreement.

What do I need to know about US tax?

Thanks for the offer and any advice given!

I've taken a 3min gander at the dual tax agreement and it sounds like your standard foreign tax credit situation. Whatever tax you pay to the US will be a tax credit for NZ and vice versa.

So, you'd basically run the company in the US according to the same rules as everyone else it seems.

International tax is not my specialty so I'm not going to pretend to be a pro. If I had more time, I could probably give you a better answer. Sorry!

I will note though that New Zealand is part of the tax planning strategy that Google uses to save. They've recently been destroyed by the PR machine for doing this, but its honestly pretty common. I'm constantly hearing and learning about new ways to leverage laws between federal, state and international tax rules to do the same.

It's the same kind of thing as the low-tax IBC in the UK am I right?

I think a dual tax agreement is a bit different than a low-tax IBC generally is a situation where you dont have local taxes and you pay small fees for doing business (franchise tax). The tax havens in the bermudas and carribeans do this a lot.

A dual tax agreement is usually an agreement between the two governments saying that, they will give a tax credit for taxes paid to the other guy so that the same amount of income isn't taxed twice.

low tax IBCs generally just dont pay tax at all.

The necessary piece of information here that most people don't make explicit is that US persons (natural or companies) are liable for all income worldwide (incl. from foreign subsidiaries when they bring that cash back to the US); the thing Google is doing just deferring that day by holding the money offshore. In practice they can defer indefinitely, and use the overseas cash to finance overseas operations, make overseas investments, etc.

There are cases (Barbados!) where due to awesome double tax treaties, you can actually end up paying less US tax under a double tax treaty than in a zero tax jurisdiction subsidiary -- mainly by using the foreign entity in the double tax jurisdiction to recharacterize earnings as capital gains or dividends. There was a period where dividends were not taxed much. Even when magic loopholes like that only exist for one year, it becomes a big deal because these pools of offshore deferred earnings can all stream through during that window.

Just having servers in the US does not mean you're doing business in the US. What is important is where your nexus of operations is or if you have actual staff working in what could be considered a branch in the US.

In the early days of the internet, several US citizens setup servers in offshore jurisdictions and bragged about it. The IRS quickly established that server location does not affect nexus and the offshore server owners ended up having to pay US taxes.

This all expects you are not registered as a company in the US. In theory if you have a US LLC with no real operations except outsourced hosting in the US, there would be no US tax liability either as LLC are pass through entities. A c-corp is not passthrough and you would probably be taxable in the US. Any dividends and capital gains would be under double taxation.

I am not a lawyer, accountant or anything. I just know a lot of people who do these kinds of things.

Nexus is a state and local tax concept. Nexus is defined as the "minimum connection necessary for a state to tax a taxpayer." Generally, there are three factors that lead to nexus (there are more but i'll give you the basics.)

If you have employees in a state then you have nexus (this may include contractors as well). If you have ANY type of property or rental in the state then you have nexus. If you have significant economic connection to a state then you have nexus (notice this is a very subjective and BROAD concept.)

Having servers in a foreign country isnt really important because YOU the owner = nexus to the state that you're living in. So, your state has the right to tax you.

The IRS doesn't care about your nexus because they dont have that rule. The IRS is the shit because they dont deal with silly questions of "the relation to income earned and the US." Their rule is simple, "All income you earn is taxable period unless we say it isn't"

Thanks for all the comments, I am way more confused now! I guess the lesson is... go spend more time with my real accountant.

Hi Camz... first of all thanks for all the posts here. Learning a lot.

I know someone who got offered employment (via internship) with KPMG before they graduated (ie. they've not yet started). Do you have any advice for a new employee who is interested in startups?

Or more generally I suppose, do you have any career advice for someone specifically interested in accounting and technical startups?

Hey Catshirt, sorry for the slow reply but I lecture and that takes a lot of time haha.

Im sorry to tell you that you have a difficult road ahead of you. Public accounting is rough because you'll be abused with hours of overtime that makes you think you might as well create a startup, you be dealing with BS politics all the time, you're going to be undervalued and under paid.

I tell you this because you should know the shit storm thats coming. Knowing how rough it is will put you in perspective and help you deal with those rough days. Public accounting is meant to provide you years of experience in a short period of time. You can equate 3 years of experience to 1 year at a big 4. So the long term goal is to either become partner (which is a pretty shitty option) or to leave and get a cushy job as a manager, director, VP or CFO at a company and do nothing.

As for your own personal dreams and aspirations its going to be nonexistant your first year or two because your working, learning and trying to get a cpa.

But, like i tell everyone. If you want to do something, then stop sleeping. lol. i know it sounds like a joke but im serious. sleep vs success is a choice you're going to have to make in the accountant/law field.

I hope that Ive been helpful haha. and sorry for being a debby downer but the uninitiated need to know the truth.

I'd like to hear your opinion on the tax implications of selling an ecommerce website. In my case, it was a website that sold a single digital product. I sold the website code, the product code/copyright, the customer database and mailing list, advertising copy and 60 days of support for a single price. I operated this website for over a year before selling it. I am in PA, USA and the buyer is in Australia, and we did not break down what part of the purchase price corresponded with any individual element of the sale.

I talked to several accountants and 3/4 said I can claim it as a long term capital gain. 1/4 was unsure since part of the value is the software copyright. Am I safe to claim this as a LTCG at 15%?

Hmm.. thats a complicated set of facts. I hope that the sale was done through a stock buyout instead of a sale of assets.

When you sell a company there are two major methods. A complete sale of assets (which it sounds like you did) and a sale of stock (which is preferrable).

the sale of stock would guaranty you long term capital gains.

I'd say that you should be taking a capital gain on everything generally

But, intangibles like copyright are funny. The creator can sell the copyright and sell it, but when you sell it theres a problem. How do you determine the basis of the copyright. Generally, companies buy copyrights and etc so its easy for them to have an adjusted basis or cost for them to calculate. But, you developed and created the copyright so your basis is probably going to be pretty small and the gain is going to be HUGE. You can say that you're hours spent is an increase in basis. Same rules apply to songwriters and etc.

You can sell the IP, but the gain is going to be significant.

Thanks for the feedback! I don't mind claiming the amount of the sale as a taxable gain, the only bad scenario would be having to claim all or most of it as ordinary income. This was just one website of many I operated under an LLC, so I didn't sell the whole company, just some specific assets. It was done on Flippa, the eBay of website selling, with a sale price of $90k.

I'd highly suggest that you separate your websites into different llcs because of a variety of reasons. Firstly, liability is rarely a serious issue in tech but it's always better to be safe than sorry right?

Secondly, by separating the assets you can make sure that upon a sale, the exit would go much easier and smoother generally. Making a purchase of stock is generally easier than buying individual assets. Also, you won't need to allocate the price of the sale to all of the assets based upon the fmv of the assets. Basically, it'll also save you money on legal and accounting fees.

Thirdly, selling through a llc or legal entity In general is great because it also leaves room for tax planning strategies. Ex, if sell based on assets you'd have to pay tax on the sale of personal property. Most propel don't even know that there's a tax on personal property or what personal property is. But, a sale through stock generally helps you avoid this type of exp. Learned this dandy trick in my stint in m&a.

if the IP is owned by an llc and you sell your shares of the llc, does that simplify things? in acquisitions in general, if the acquirer is buying you out by buying your shares, does that generally result in a capital gains tax, and not ordinary income tax? (if so, my daydreaming of starting and selling a startup for millions just got even better)

When you sell the equity in an LLC, then you're selling an investment and if you hold that investment for longer than a year or 366 days or more, then yes it would be long term capital gains.

Generally, its better for you and the buyer to sell equity in a legal entity that to move the assets around. Its easier, less annoying and you dont need to worry about transferring a bunch of titles.

Simple questions that are suddenly (more) important because we have just become cash flow positive and now have non-trivial revenues.

1) Do we need to charge sales tax on software as a service? Our customers are large organizations spread all over the country. Whatever research I did suggests that as a service, this should not entail sales tax.

2) Other than payroll taxes, income taxes and 1099s for contractors, are there any other taxes I should be aware of?

3) So far our accounting has been me noting expenses and revenues in a spreadsheet and making sure I have all the receipts. Do we need to start maintaining formal accounts per law? (Even if not, I have already retained a part time accountant to do this..)

Thank you!

Sales tax is collected by the state, so you need to ask an accountant familiar with the state(s) you have a nexus in. A lot of other taxes you may be subject to are specific to your state and even county and township. I pay 3 types of state taxes and 3 types of local taxes for my business. It'd be different in another state.

Yup, sales taxes are a state issue. Like i said, state taxes are complicated and i'll try to find the time to dig up that 50 state matrix which is a guide to all the states and how to treat software sales...

that sounds very useful to this audience...

I'm in FL and have been trying to figure out how sales tax applies for my startup as well (http://www.spokesystems.com). We are building a web based, subscription paid, application similar in scope to Basecamp, but for construction project management. I would love to get an opinion on the sales tax implications for FL. Thank you in advance to the fantastic HN community.

Honestly, I cant remember off the top of my head the SPECIFIC details related to florida but i can almost guaranty you that you're business is providing a taxable service.

(1) Your business isnt provided a customized system so it isn't a professional service.

(2) A web portal or a web 2.o application is more a service than software, but state tax laws have dealt with it similarly to software.

(3) You could argue that your service is really a report generating service because your helping clients generate management reports on the status of their projects. Reporting services are almost always taxable sales.

Hope this helps, i'll probably post that matrix whenever i find it haha.

Darn. I was thinking along the same lines as your response, but hoping there was an easy answer. I'll definitely do more research into FL's tax laws, but I appreciate your willingness to lend your opinion. [Startup idea: state and federal laws translated into understandable language...a Wikipedia of laws. Probably not the best idea since I'm sure that would result in quite a few law suits do to someone following incorrect or incomplete information]

No problem, that idea actually has 4 major multibillion dollar companies competing right now. Lexis/Nexus, Westlaw, RIA Checkpoint and CCH basically TRY to do this but honestly there's no way to make these laws easy.

I'm a professional that uses these legal research tools and I cant even rely on them. I have to basically do all the work because their conclusions are not reliable when ur client is audited.

Tax, law and etc are just weird areas where you cant automate it on a level higher than turbotax. I think it'll always require a person on the other end to do it just cause its such a labor intensive field that is never the same result on a consistent basis.

Awesome question!

Sales tax is a crazy world for software developers because there's a shitload of exceptions and rules. I'll tell you the general rule though.

Software is taxable IF

(1) it is a retail "off-the-shelf" program. A retail "off the shelf" program is anything that you created to be sold without further customization. So any standard program your selling copies of would be required to pay sales tax.

But, if you customized the software then it could be exempt from sales tax. because then it would be considered exempt under the professional services exception.

This is a very complicated area of sales tax because its new. I actually have a 50 state matrix somewhere that gives detailed instructions on every state that i prepared for a client. Its a fortune 500 company so i cant say its name but if youve ever done ANY financial or legal research, then you're using their name. I'll probably post it up later on as a separate HN post.

2. Well for payroll, its a complicated area because you have federal, state and city withhold taxes, plus FICA, Medicare, FUTA (Unemployment) and others so u want to make sure that this is done correctly. Trust taxes are payroll taxes and if u F-BOMB this up, then you are PERSONALLY liable. It is one of those taxes that if u screw up, the IRS is going to literally levy you bank account.

Also, if your in NYC. We have a bunch of special taxes =D. For example, you get to pay taxes on your rent. the CRT or Commerical Rent Tax is a tax that people in manhattan have to pay if they pay more than 250k in rent LOLL. So, it really depends where you're located and how your business is being run. You should email me privately to discuss this further if you really care too.

3. Well, if u hired an accountant then they should know what they're doing. (Assuming they're qualified). But, YES u need to keep records of everything. I suggest you scan everything because it makes life easier. But, honestly it doesnt matter how you're keeping track as long as you ARE keeping track. Obviously, there are better ways to do it but thats for another discussion.

Thank you for the detailed answer. We do customize it for each customer (almost a requirement of "enterprise" software), but we have hedged our bets by making it very easy to customize.

We have our bank do our payroll and pay them for it, but I will have the new accountant take a special look at these. We are not in NYC! Love NYC but thank $deity, the rent is insane and it's SO COLD.

Scanning the receipts makes a lot more sense, but it is (was) just easier to throw them in a shoe box :)

Quick note, if you are selling a standard software program and then tailoring it to an enterprise user, then you'd still be paying sales tax on the "standard" portion of the code. The customized portion COULD be non-taxable but it would have to be a substantial change and not something minor.

Also, you should put more information about who you are and where you are located on your website. There is zero real contact info.

Customer references are also helpful in services businesses like yours.

ask hn: review my law firm

Seems fair: Law advice for business critique.

Thanks camz!

I am at the very earliest stage of starting an ad network and will be taking money from advertisers and redistributing to publishers (after I take my cut). What are the tax implications here?

If I take a 30% cut and distribute the other 70%, how do I show the gov't that the 30% is the actual profit and the other 70% is not mine?

What other tax pitfalls can you see?

There's no real reason for you to stress about this point because if your taking in 100% of the ad revenue and then remitting 70% of it to your publishers then you're only keep 30% as gross profit.

Ex: Ad Rev/Sales = $100 Cost of Sales= $70 Gross Profit = $30

So, the IRS is only going to see that you earned the 30% either way. The only real important issue you may want to consider is whether you want your gross sales to be so high. Have a large amount of gross sales could exclude you from a number of small-business tax saving options such as the S-Corp election and it would make you have to file much more complicated tax returns. If you have a large amount of sales (millions) then you'd have to file reconciling schedules between accrual accounting per your books and records to your tax records.

Honestly, there's an unlimited number of possible problems when you start making lots of money. Mo money, mo problems. But, lets worry about making that first buck and take it step by step.

Conclusion, dont worry about it until you get there because you're fine so far.

On a related question, I'm intrigued as to how this kind of market is different from Apple's App Store[1]. I know Google expenses its AdSense partner cost as traffic acquisition cost[2], but what about them makes the IRS/SEC view them differently?

[1] http://tech.fortune.cnn.com/2010/06/23/app-store-1-of-apples... [2] http://news.ycombinator.com/item?id=1792921

In tax, its all the same generally speaking. The only difference is where these costs enter the equation. Apple is similar to the situation above where they are accepting money and transferring a large portion of it back to the developer as a cost of sales.

In the ad business above, the transfer of 70% income is a cost of sales that leads to gross profit.

I havent looked over google's financials, but i would expect that the traffic acquisition cost is an expense and not a cost of sales. Expenses enter the calculation after gross profit.

Sales - Cost of Sales = Gross Profit - Expenses = Net Income

Great, but "problems of success" aside, here's another question which is probably more an international law question but, here goes...

Out of the gate, I am seeing folks from all over the world signup for my ad network (mainly, US, India, Singapore), and it has me scratching my head. I don't know how to deal with these customers should they ever convert on a sale.

Does this affect the way I will pay taxes on the revenue?

Are there countries I should absolutely NEVER try to send money to (for example, if the country is under embargo)? If for some reason, I can't pay folks from those places, what becomes of the tax burden? Is the tax liability for 100% of it on me, or can the money sit forever on hold without being taxed (presumably until the embargo is lifted)?

Well income tax wise you'd have to pay taxes on the income regardless of where it's coming from. If there is a country that is under embargo (which I don't know haha) then you're keeping all of the income. Thus, you would have to pay tax on the full amount because you never remitted the portion of the sale that was supposed to be your cost.

If you pay it out later on, then you could take a deduction for it later. This is a common issue that people deal with. It's essentially cost of goods sold. It'll become part of your COGS once you pay it.

Having been audited by the IRS before, and running a similar ad brokerage service before, the IRS will want to see substantiation (receipts/checks/other evidence) for every payment you made to publishers. That's how you prove the 70% you claim in expenses. Don't forget to 1099 every publisher you pay over $600 during the year, and send the copies to the IRS!

I dont know if you guys heard, but the Obamacare health bill requires everyone to receive a 1099 that gets paid over $600. It used to be that only individuals and independent contractors were the only ones that were really required, but now they require it by law from everyone. But, its hilarious because if people actually obeyed this rule then the IRS would stop functioning. They dont have the staff to effectively enforce this rule.

> I dont know if you guys heard, but

http://news.ycombinator.com/item?id=1306434

http://news.ycombinator.com/item?id=1326167

http://news.ycombinator.com/item?id=1541005

http://news.ycombinator.com/item?id=1641759

(We noticed.)

One other question: As a foreign company with a bank account in the United States (but no operations, although our websites are hosted by an external company there), is there anything we should be cognizant of? (special US tax forms or similar we should be filling out, etc...)

I dont think so, you should be fine since you're earning the income from a foreign country such as canada. You should be fine since you dont really have a connection to this country besides your customers.

But, some states might be aggressive and say that your bank account is "property" that is being held in the state and try taxing you lol. Its funny because states will try this on occasion.

What are the tax implications if a US corporation grants stock (or options) to a non-resident alien? (Assume that said alien is not doing any work in the US and would not otherwise make any filings with the IRS.)

A US nonresident alien has special rules because your not a citizen. But, generally a nonresident alien is not required to pay social security on income in the US if it is related to a foreign nonresident students studies. But if it's a general part time job or something then you'd have to pay like everyone else.

Also, you are not taxed on your worldwide income because you'd only be paying tax on your US income. Thus, you'd only be taxed on income earned in the united states.

conclusion: options are not taxable if ur an employee because they'd probably be qualified. Stock grants probably would be taxable since ur getting gross income in the form of stock or equity.

If you are a foreign company (Canadian, federally-incorporated), what kind of actions can you take to make it as easy as possible for a US company to acquire you (from their accounting perspective) ?

Canada generally uses GAAP like the US so theres no problem there. Also, accounting isnt going to be a serious issue when a company wants to buy you. This is more like an afterthought. If the buyer gets a tax benefit then thats icing on the cake but the accounting wont make a big difference unless they see that your books and records are complete shit and totally messed up. Then the buyer might get scared and think you're cooking the books. But, thats the only situation i can think of that would make a big deal.

If I go to a coffee shop to do a bit of work on the WiFi, is it legit to buy the requisite coffee or two on my company card and treat it as a business expense?

That's honestly more of a semantics question. The IRS doesn't appreciate it but, they're not going to kill you for it. Whatever you spend on coffee is only going to be 50% deductible under meals and entertainment, so don't worry about it.

Any thoughts on buying my founder shares and cofounders and early team stock via a rollover as business startup (robs), ideally from a Roth?

And or thoughts on same using small business jobs act of 2010.

Goal is capital gains and amt minimization for scenarios from 10mm exit at 18mo to ipo and billions in 10 years, just to cover possibilities.

The irony is I'd probably donate 90 percent after a certain amount.

In this situation you're essentially trying to increase your adjusted basis in the property so that you'd pay less taxes on capital gains and alternative minimum tax.

Honestly, I can't think of an answer that would solve this problem off the top of my head right away in the 3mins afters reading your question and here's why:

Regardless of how you transfer these assets, they're going to be transferred based upon your current tax basis and your still going to be paying cap gains every sale.

Ex. You sell for. $100 Basis is for. $50 gain is for. $50

Later through a series of transfers, you regain your shares at the FMV. New basis is. $100 but you already paid the cap gains tax at every junction so the whole series of transactions was pointless.

But, I'm sure there has to be a way to get around it and I just haven't thought of it yet lol. Give me a few hours and I might be able to string together a plan. I'm going to think this over and see if there's a way over the day.

I do not understand your thinking here.

If it's a ROBS, and you invest using already-taxed Roth IRA/401k funds as a rollover into a Roth 401k, you actually don't care about the basis. You just want to characterize it as capital appreciation on an asset acquired in the Roth.

My understanding is ROBS, aside from being hated by the IRS if they step even slightly out of compliance with 401k regulations, are basically close to magic. $50k to set it up, invest $50k in a company to give it $50k capitalization, and sell the company later for $10b; zero tax owed.

With the SBJA2010, you have a similar deal; as long as the capital gain is due to the sale of a qualifying asset, you owe no capital gains, and it doesn't fuck you for AMT either.

I'm going to have to say that I'm not familiar with ROBs, since I never came across it. But, its definitely peaked my interest. From the preliminary reading I've done on it, it's a very aggressive tax planning vehicle and highly despised by the IRS. Which means it probably is as amazing as you say it is.

Allow me some time to read up on the case law in regards to this topic and I'll email you directly if you don't mind. This is something that would definitely be more than a 30 second answer and I'd definitely be interest in discussing it merits and shortcomings with you. Thank you for bringing it to my attention! No matter how many years I deal with taxes there's definitely going to be a lot that I need to learn lol.

Hi Camz, I'm a non-resident alien under a student visa and own a C-Corp in Illinois. I sell software as a service and would like to know if there is anything special tax-wise I should take care of being a non-resident alien. Also, any general strategies on how to minimize my tax exposure as a non-resident alien?

Hey eduardo,

We'll first, I would suggest you be very careful when you graduate and attempt to get a job in the US. Once, you get an H1 visa, its illegal for you to work for anyone other than the company that applied for your H1

As for non-resident aliens. There's pretty much nothing but bad news there because you dont get a standard deduction unless your Indian. The only benefit is if you're working for a company that is related to your education, then you dont need to pay social security tax.

Other than that, I cant really think of much else you have to watch out for off the top of me head generally.

Thanks! I have graduated already (almost a year ago) and so far so good working for my own company. We'll see when tax time comes.

How do you expense website acquisitions? Five-figure range...my current accountant is doing them as goodwill over 30 years. Seems nutty to me! I'd love to expense them as quickly as possible, but only within the law.

That sounds a bit awkward because goodwill is an intangible that should amortized over 15 years. I'm going to start showing legal statutes:

"General rule. A taxpayer shall be entitled to an amortization deduction with respect to any amortizable section 197 intangible. The amount of such deduction shall be determined by amortizing the adjusted basis (for purposes of determining gain) of such intangible ratably over the 15-year period beginning with the month in which such intangible was acquired. "

All intangibles are amortized over a 15 year life. Also, Section 179 is a deduction that lets you take up to 250k of depreciation in your first year as long as you meet the rules and dont hit over the phase out beginning at 850k i think of assets.

BUT, I must remind you that I could be missing something because I dont know your EXACT tax situation. I'd have to discuss your facts in detail to be absolutely sure.

But, again the general rule is 15 years.

I feel like many people avoid getting a tax accountant, because they think it's going to cost an arm and a leg.

So what are the rates usually like? i.e. monthly/yearly service

Honestly, the cost varies because the quality of the accountant varies. Also, when you hire a "CPA" most of the time people dont think to ask the CPA what their background is. CPAs are broken into three types of people. There are tax guys, auditors, and advisory guys. If you're dealing with a guy that was an auditor or in advisory, then you're hiring the wrong guy because he doesnt know his ass from his nose.

This is BY FAR the most common mistake when people hire accountants because they dont understand the industry.

If you're hiring a "big 4" firm like pwc, kpmg, deloitte or e&y then their standard hourly rate is 375 per hour for a 1st year associate (fresh college grad). But, they never get to charge the full standard rate, so the real rate is probably closer to $250 per hour or (70% to 50% of the standard rate.) Senior Associates have two years experience cost $450, Mgrs and Sr. Mgrs cost about 600 and Partners cost about 800 to 900 per hour. All amounts are standard rates multiply the rate by 50% or 70% to know the effective rates.

For smaller size accounting firms, the price also varies because the accountant is going to charge based upon their experience and how they perceive their value.

I won't lie, I charge high rates because I think that I provide more value than your average tax accountant. A quick story on how I started my firm:

I charged 20 bucks per return during the first month I opened my firm because I was TERRIFIED and DESPERATE for clients. I got a few because I was so god damn cheap, but I was killing myself for literally NO MONEY. Obviously, this wasn't the way to do things. I very quickly learned a few things.

(1) Don't cheat yourself and charge ridiculously low prices because you dont get more clients. People question your skill and lack respect for you because you're so cheap. Charging will definitely lend credibility.

(2) You need to take a lot of time to ascertain how much the market is willing to pay for your services. In my case, I really didnt know how to quantify this so I just started raising my rates.

The second month I opened my firm, I raised my rates to 150-200 dollars per return. This was better but still not worth the time. This price point actually led to MORE clients and MORE sales.

Lastly, the 3rd month I basically started to just play games and REALLY push the envelope. I wanted to know what the market would accept for my services so i began to quote $3000 starting price for my services to test the waters. LOL. Again, my business didn't slow down at all. By now referrals were coming in left and right to the point where I actually had to SHUT DOWN my website so that I would stop getting calls.

Recap: $20 to $150 to $3,000 haha.

I generally dont charge hourly because people like certainty, I won't rehash this discussion because this point has been beaten to death by coders discussing how they handle consulting jobs. But, I'd say my hourly rate varies depending on the project. The lowest I'd accept generally would probably be around $75 dollars an hour? If it was for someone I liked or for a good cause I've been known to drop the price significantly.

What state are you in?

I'm in new york city and that's where I currently practice. I'm working on a nonprofit 501c3 startup/webtool for education from 1am to 3am. Its nothing as interesting as the stuff you guys do, but I like technology and really want to do something that helps people not follow the same roundabout path through life that wastes time.

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