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I know this might be a bit narrow for a question, but I can also see other start ups working on this scenario it self.

We have X amount of money currently sitting in the bank. We just received it from our investor. We are a team of 2 and we have set up an agreement. I will leave my job and work on the new start up full time. He will stay at work, same hours and work on the start up in his hobby time. I will be using the money in the bank, while he will stay with his personal finances. I think this is all well and we have not had any problems with this agreement yet.

But here is the situation, We have about 8 months worth of runway to get this start up off the ground. I figured the best way to manage this money was to get a copy of quickbooks and just work on the money side of things once a week or so. But since all the money is helping pay for my expenses while I am not working. How does this get handled both tax wise for the company and for me when I use it to pay my self a small salary?

I know we should pursue an accountant, and I have one in mind when we start bringing in the money, but I don't want to spend money on outside sources just yet. I feel, that we should just go 8 months on the money and keep up with the book keeping during that time. At the end of the 8 months, I hope to have enough money to start using an accountant, but I just want to know what my future might look like as far as money is concerned with taxes.

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Your questions related to taxes could highly depend on what country/state (laws and regulations) you're operating within. In any case, it's probably a good idea to, as you also mentioned, hire an accountant to take care of the books. It could end up costing you a lot more if you don't (depending on your circumstances, of course) :) – Leif Apr 16 '12 at 23:09

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I don't understand the connection between you taking a salary and the QuickBooks bookkeeping. Those are two separate issues; I must be missing something.

But, to answer your actual question:

But since all the money is helping pay for my expenses while I am not working, how does this get handled both tax wise for the company and for me when I use it to pay my self a small salary.

The money used to pay for your everyday living expenses (food, shelter, etc.) is not a business expense, and cannot be deducted as such. What you have to do is pay yourself a salary from your business funds.

How this is done will depend based on your business structure. For example, an S Corporation can pay its owners a salary. However, LLCs don't technically pay salaries. LLCs have something called guaranteed payments, which is basically a salary, but with a different name. You should talk to an accountant about this.

The salary you pay yourself will be taken out of the business pre-profit. Meaning you will get it whether or not the business turns a profit.

The salary you get will be considered income for you. You will have to pay income taxes on that amount. You may also be subject to paying quarterly estimated taxes, as well as self-employment taxes. You will want to speak to an accountant to make sure you are covered. If you are required to pay taxes on your salary and you don't do it in a timely fashion, you will likely end up owing the IRS a hefty amount in penalties.

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Thanks Zuly, its a C Corp. Its in West Virginia as well. So your saying, because its a startup, I still have to pay my self as an employee of the company? Is there any other way to do things like receiving a gift from the company or anything else? The only reason I ask is the because now the X amount of money just turned into 2/3rds X amount of money after taxes. – SpoiledTechie.com Apr 17 '12 at 3:51
I am new to this, so please bare with me, can the money go straight to paying bills of the company if the founder claims their residence (of course a portion will only be used) as the office space? – SpoiledTechie.com Apr 17 '12 at 4:13
No and no - your personal income is income, follow the laws, and no, if you have office space, then (a) you surely do not use all your appartement as such and (b) that would be rental income you get from the company. – NetTecture Apr 17 '12 at 4:43
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@SpoiledTechie.com I think you need professional help. You are asking a lot of questions that honestly don't make much sense. You seem to be mixing unrelated topics. Of course the company's funds can go straight to paying its bills - that's considered a business expense - but that has nothing to do with whether or not a founder claims a room in his residence as an office. The fact that your company is a "startup" is irrelevant. If you want the company to pay you a salary then you are receiving income. You MUST pay income taxes on income you receive. There is no way around that. – Zuly Gonzalez♦ Apr 17 '12 at 5:41
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Wait, are you asking if your company can pay your rent directly if you work from home? The answer to that is no. If you want your company to be considered a separate entity then you must treat it as such. This will likely still be considered income. And, like @NetTecture said, you can't treat your entire residence as office space, only the portion you use as an office. Like I said, you really should seek professional help with this. – Zuly Gonzalez♦ Apr 17 '12 at 5:55

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