Before I check with a CPA or tax attorney, I have a question that some of you may have already had to address in regard to your personal taxes.
Many of us are, have been or will be founders of start-ups that are legally structured as corporations. During the bootstrapping face, from a personal tax accounting perspective, what kind of personal tax credits and/or deductions am I eligible for? Or said another way, how do you handle the expenditures that you are using from your personal assets to finance the company's costs? The assumption here is that you are not taking any salary.
Again, to be clear, I am not talking about dealing with the business taxes for the corporation but your personal expenses related to the company. So, I'm guess there are several approaches that can be taken:
#1 is generally not going to sit too well with professional investors as they are not huge fans of lots of unpaid debt on the books that needs to get paid out of the funding.
#2 seems like a reasonable option but, with no W-2 salary from the company, very little is deductible on your personal taxes for this year's taxes (I have some other income). That said, if you have absolutely no income for the tax year it really doesn't matter and you are best to defer this to the next tax year when hopefully you will have some W-2 income from the company.Also, where would the majority of these deductions be taken on your personal taxes. Would it be under misc. job related expenses?
#3 is another reasonable option although you are putting everything at risk and taking zero personal tax credits for your personally incurred costs. Of course,you can't use founders costs and labor to justify the valuation ask and vesting and then turn around ask that you get paid for these costs too.
Anyhow, I think some combination of #2 and #3 makes sense but I'm curious what others have done or have been advised to do by their tax attorney or CPAs.
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