Start-up taxes and tax breaks that founders should try to take advantage of with Maria G. Worley of Start Law
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We hosted Maria G. Worley, Esq. , Founder of Start Law and a US-based attorney for an Ask-Me-Anything session over our Slack community on 12th July 2022.
Best excerpts from the Q&As are below:
Q: How successful has the virtual subscription model for Start Law been?
A: I highly recommend the virtual subscription model. It's the whole "productized service" concept. I'm definitely not a marketing expert but it really seems to make the buying choice easier and the attorney/client relationship better as well.
We had to adjust what we included-iterating as we went- but it's been great overall.
Q: How to be prepared for a VC check? Is there any list you can share that might be helpful?
A: I do!?I have some slides from a workshop I did a while back that I can share
Q: When bootstrapping a side hustle, when do you recommend one should consider getting it registered?
A: There's a couple of "events" that are good benchmarks.
Q: I have a question on start-up taxes and tax breaks that founders should try to take advantage of: I have heard of Qualified Small Business Stock, or Q.S.B.S., exemption and 83(b) Election. Are there any other tax-related any things like that we should be aware of?
A: Qualified Small Business Stock Tax Exemption
First, for those who aren't familiar with this, it's a tax break that allows shareholders of corporations to avoid capital gains tax of up to 500 million dollars. I truly hope we can all tax advantage of the break someday!
Requirements: your company has to be a corporation (not S corporation or LLC), you must hold the stock for 5 years prior to the gain.
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83B
83B is a letter you submit to the IRS if you have stock that vests. The letter says that the value of the stock is based on the date it's issued, not the date it vests.
I've seen founders have problems here after fundraising. For example, if you as founder hold 80% stock but then raise a round and your investors want some of your stock to vest, you have to remember to get that 83b letter in. It doesn't matter that you held the stock prior to the fundraising without vesting. You have to send in an 83b or you'll wind up paying market value for your stock not .00001/share (because a valuation was done for the financing).
Other tax matters for founders:
Corporations have to file an 1120 every year, it doesn't matter if you are pre-revenue.
Corporations that have nonresident shareholders must withhold a portion of dividends for taxes.
When you issue stock options to employees, they will likely be confused! Try to offer some sort of information for them so they don't mess up their own taxes.
One other tip that often gets overlooked, if you make advisor or other agreements that include equity, make sure to follow up with all of the documents- an Advisor Agreement doesn't issue equity, you have to include the Shareholder Agreement as well.
Q: I am a digital nomad (travel while working remotely). Can you share some insights on tax laws around the same? Am I liable to pay taxes on my income if I am travelling to some foreign country esp. the US and Europe?
A: Awesome on the digital nomad life. It depends upon the type of company you form. If you form a Single Member LLC, you will have no tax liability in the US because the income is reflected on the owner's personal taxes, not on a business tax return. As I'm sure you're aware, if you don't stay too long in any one country, you could even avoid filing personal taxes for some years, potentially avoiding any tax liability at all.
One caveat with this, there are a few countries where this doesn't apply. If you live in Brazil or Argentina, it's a different story.
Generally, 183 days per year is the rule in the US and EU (You're considered a resident for tax purposes if you stay in a country for more than 183 days out of the year).
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