4 ms·
If you have say an LLC as a disregarded tax entity, or an S corp that earns honest buck, say $1m/yr in 2015, prepare to pay $500,000 tax, even if you intend to
by cft 11y ago
If you have say an LLC as a disregarded tax entity, or an S corp that earns honest buck, say $1m/yr in 2015, prepare to pay $500,000 tax, even if you intend to store money in the corporation to re-invest all of it in 2016. At the end of the calendar/fiscal year, the income will be taxed, regardless of your intent to use it for business development in the later years. Note, it is not taxed when you take it out of the corporation, it is taxed before that.
If you create a C Corp, it will be taxed about $300,000, but then taxed again at about 40% if/when you take it out.
Contast this not even with Pfizer, but simply with say a smallish public company with 1bn market cap that has gross $200m/yr and expenses of say $201m/yr (often deliberately in red, like AMZN, to pay 0 tax). Every several years they would issue $100m worth of new shares to remain cash flow positive (zero tax rate on $100m by the way), and use a large portion of these proceeds towards the executive compensation in options that is taxed at 20% as long term capital gains. I observed this up close, my ex was a corporate lawyer in such a typical company. But this was not all. In the end they split the company into two, (paying hiring bonuses in the shares of the spinoff to all execs), and incorporated the spinoff in Cayman islands, to make it an inversion target! I felt almost nauseus writing my own large tax checks for my domestic LLC!!
- encoderer 11y agoMy cpa gave me the advice that a c Corp is the best option if you have retained earnings for exactly that reason.
- deleted 11y ago[deleted]
- mahyarm 11y agoWhen they give you those options and if you exercise right away they are taxed at whatever the current market value of the stock is, as income. It's only once you exercise and hold that you get the LTCG tax rate on the rise of price of the stock when you sell. If they are structured as ISO options, then you will hit the AMT tax rate very very quickly and at the minimum pay %28 tax. If you live in CA, there is another %8 CA AMT tax that will apply on top of that I think. And if you start hitting the AMT tax rate, the 'tax credit' you get from paying state taxes starts going away too! So I guess if you play a lot of AMT shenanigans with ISO stock options, you can reduce the tax load to %28-36, which is an improvement I guess. But ISO stock options are golden handcuffs and pretty bad when your in a private company. If I'm wrong, me and whole bunch of stock compensated engineers would be very interested to learn how we are wrong.
- mahyarm 11y agoWhen they give you those options and if you exercise right away they are taxed at whatever the current market value of the stock is, as income. It's only once you exercise and hold that you get the LTCG tax rate on the rise of price of the stock when you sell. If they are structured as ISO options, then you will hit the AMT tax rate very very quickly and at the minimum pay %28 tax. If you live in CA, there is another %8 CA AMT tax that will apply on top of that I think. And if you start hitting the AMT tax rate, the 'tax credit' you get from paying state taxes starts going away too! So I guess if you play a lot of AMT shenanigans with ISO stock options, you can reduce the tax load to %28-36, which is an improvement I guess. But ISO stock options are golden handcuffs and pretty bad when your in a private company. If I'm wrong, me and whole bunch of stock compensated engineers would be very interested to learn how we are wrong.