3 ms·

You should always pay yourself, even without VC.

JohnFen 4y ago
True, for legal reasons. Although I have never sought or accepted VC investment in my ventures, I have always paid myself (minimum wage). I started doing this on the advice of both my lawyer and tax accountant -- it's easier to not only stay on the good side of the IRS, but to prove you're on the good side, if you completely disconnect the business finances from your personal finances. The easiest way to do that is to draw a salary.
- Consultant32452 4y ago
  I'm not an accountant or lawyer, but I still share the advice I got is to pay myself whatever salary I would need to pay someone if I hired them to do my job. For context, I'm a one-man shop that sometimes hires contractors to do pieces of work for me. This should NOT be interpreted as me giving anyone else advice.
  - JohnFen 4y ago
    If I had to pay myself the going rate for running my own startup, I wouldn't be able to afford doing the startup!
    - aSanchezStern 4y ago
      That... doesn't seem to check out. It can't be the going rate if it's infeasible. By definition the going rate is the rate that would allow you to afford doing the startup. Maybe you're comparing to the going rate of running a much better funded startup? But that's not the going rate for a startup of your funding size.
      - JohnFen 4y ago
        By "going rate", I mean what a person doing the same job(s) would earn at an established company in the same industry and location. In other words, what I would pay someone else if I hired them to do the job.
    - throwawaywu 4y ago
      Perhaps reevaluate if the startup is financially good for you and your family.
      - JohnFen 4y ago
        Oh, I do a very heavy analysis before each venture. My family and I have done very well with them, thank you. When I'm doing a startup, I'm living on savings, not a minimum-wage salary. My businesses can't pay me my going wage at the start because I try to avoid debt when starting a business to the greatest degree possible. There are much more crucial expenses that money needs to go to (such as paying others).
        Consultant32452 4y ago
        There's two threads being pulled here. Thread 1 is whether or not the behavior you describe is a crime Thread 2 is whether or not anyone will ever enforce it and what might the penalties be (if any) My guess is that it's technically a (minor) crime but will never be enforced unless you become a political problem or something and they just need to find any old crime to get you. None of the above should be considered legal or financial advice. It is solely my personal opinion and I am not an accountant or lawyer.
        JohnFen 4y ago
        I am quite certain that I'm not engaging in anything that violates the law. I'm not even engaging in anything slightly dubious. There's no tax avoidance or evasion going on here at all (this practice in no way reduces my tax bill).
        kaashif 4y ago
        This feels like you replied to the wrong comment, there's nothing remotely resembling a crime in what you replied to.
    - Consultant32452 4y ago
      In my case it looks more like this: I won a contract to develop some Java code for ABC Corp. Who would I hire to complete this task and what would I pay them? I might hire a Junior developer to do the coding, a salesperson to land the gig, etc. If you're not bringing in enough revenue to fund those "positions" + profit then you are not billing enough for your work. Those people get paid and so should I for performing those duties.
- satvikpendem 4y ago
  My accountant said that the wage must be "reasonable" for the work you're doing, not necessarily minimum wage, in order to convince the IRS, since they don't necessarily want people paying less through capital gains tax than income tax.
  - cperciva 4y ago
    Ironically, in Canada the same "must be reasonable" applies but for the opposite reason: The government doesn't want business owners "hiring" family members and overpaying them, since typically employees pay less tax than business owners.
  - JohnFen 4y ago
    Well, maybe my practice is pointless, but it didn't raise an eyebrow when I was last audited, so I think it's probably OK.

True, for legal reasons. Although I have never sought or accepted VC investment in my ventures, I have always paid myself (minimum wage). I started doing this on the advice of both my lawyer and tax accountant -- it's easier to not only stay on the good side of the IRS, but to prove you're on the good side, if you completely disconnect the business finances from your personal finances. The easiest way to do that is to draw a salary.

Consultant32452 4y ago
I'm not an accountant or lawyer, but I still share the advice I got is to pay myself whatever salary I would need to pay someone if I hired them to do my job. For context, I'm a one-man shop that sometimes hires contractors to do pieces of work for me. This should NOT be interpreted as me giving anyone else advice.
- JohnFen 4y ago
  If I had to pay myself the going rate for running my own startup, I wouldn't be able to afford doing the startup!
  - aSanchezStern 4y ago
    That... doesn't seem to check out. It can't be the going rate if it's infeasible. By definition the going rate is the rate that would allow you to afford doing the startup. Maybe you're comparing to the going rate of running a much better funded startup? But that's not the going rate for a startup of your funding size.
    - JohnFen 4y ago
      By "going rate", I mean what a person doing the same job(s) would earn at an established company in the same industry and location. In other words, what I would pay someone else if I hired them to do the job.
  - throwawaywu 4y ago
    Perhaps reevaluate if the startup is financially good for you and your family.
    - JohnFen 4y ago
      Oh, I do a very heavy analysis before each venture. My family and I have done very well with them, thank you. When I'm doing a startup, I'm living on savings, not a minimum-wage salary. My businesses can't pay me my going wage at the start because I try to avoid debt when starting a business to the greatest degree possible. There are much more crucial expenses that money needs to go to (such as paying others).
      - Consultant32452 4y ago
        There's two threads being pulled here. Thread 1 is whether or not the behavior you describe is a crime Thread 2 is whether or not anyone will ever enforce it and what might the penalties be (if any) My guess is that it's technically a (minor) crime but will never be enforced unless you become a political problem or something and they just need to find any old crime to get you. None of the above should be considered legal or financial advice. It is solely my personal opinion and I am not an accountant or lawyer.
        JohnFen 4y ago
        I am quite certain that I'm not engaging in anything that violates the law. I'm not even engaging in anything slightly dubious. There's no tax avoidance or evasion going on here at all (this practice in no way reduces my tax bill).
        kaashif 4y ago
        This feels like you replied to the wrong comment, there's nothing remotely resembling a crime in what you replied to.
  - Consultant32452 4y ago
    In my case it looks more like this: I won a contract to develop some Java code for ABC Corp. Who would I hire to complete this task and what would I pay them? I might hire a Junior developer to do the coding, a salesperson to land the gig, etc. If you're not bringing in enough revenue to fund those "positions" + profit then you are not billing enough for your work. Those people get paid and so should I for performing those duties.
satvikpendem 4y ago
My accountant said that the wage must be "reasonable" for the work you're doing, not necessarily minimum wage, in order to convince the IRS, since they don't necessarily want people paying less through capital gains tax than income tax.
- cperciva 4y ago
  Ironically, in Canada the same "must be reasonable" applies but for the opposite reason: The government doesn't want business owners "hiring" family members and overpaying them, since typically employees pay less tax than business owners.
- JohnFen 4y ago
  Well, maybe my practice is pointless, but it didn't raise an eyebrow when I was last audited, so I think it's probably OK.