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I'm part of a new three-man software startup. We began product development in February, and started accruing expenses at that time by hiring contractors for help. Our company is not yet legally formed.

  1. How can we establish a basis date or "backdated" creation date so that an exit in the next 9 months will be taxed at long-term capital gains, instead of short-term?
  2. Is there a preference for LLC vs corporation to support this?
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Usually that is taken care of when you form the company and set an initial value. At that point, you essentially roll all that into founders shares in a corporation. For an LLC, it's a little different since you don't own stock and it's take a regular income (e.g. passed through to the owners).

If I am not mistaken, a C-Corp would be the best way to handle this because any profits from an LLC pass directly through to the partners and is taxed at your normal income level. It would be wise to consult a tax professional or lawyer as to the best way to setup what you want to do.

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