jeudi 20 avril 2017

C-Corp start-up without payroll for a couple of years?

The day a business starts paying wages, there is a huge jump in tax, compliance, and accounting complexity. So .... how long could a freshly minted C-Corp start-up with one shareholder-director-officer do without, assuming the shareholder-director-officer has other sources of income?

At which point does the C-Corp have to start paying wages, and at which point should the C-Corp really start filing Form 941 in the following scenario:


1) At the first meeting of the Board of Directors, an Officer is elected and told that until the business starts making profits, wages shall remain zero.

- IRS Pub 15a says that Directors and Officers who perform "no or minor services" and "receiver no pay" are not employees for tax purposes.
- DOL Regulation 69 FR 22121 states that Employee-officers holding 20% or more equity ownership are exempt from FLSA (minimum wage, etc.) as Executive Employees, so no need for minimum wages.
- Some states do have their own rules for minimum wage, but let's assume we are in a state where that is not the case, for instance Texas.
- As long as the C-Corp does not pay out dividends to the shareholder-director-employee-officer, and no non-cash benefits that could be considered wages are provided, there are no wages being paid.

2) The C-Corp issues shares to the director-employee-officer in return for cash and a completed software product.

3) At some point the business can be considered "a going concern"; the business is ready and open for business. Business is slow but losses start to narrow.

4) The board decides that no wages should be paid until the C-Corp has accumulated enough for a big marketing campaign.

- A C-Corp is allowed to retain earnings (within limits) to re-invest and grow the business.

5) The C-Corp. contracts an external vendor to do the campaign, the business really takes off and the business starts paying wages, and files Form 941 for the first time

6) Happy ending (or not?)


Aucun commentaire:

Enregistrer un commentaire