Tag: tax

New York’s STARTUP-NY Program

Employees/Contractors, Startup Formation, Tax

Starting at the beginning of 2014, New York’s STARTUP-NY Program went live.  Here is the official website for the initiative.  Its goals are laudable but its only available to a small niche of companies.  If your company qualifies, however, the benefits are rather nice.

In summary, the Program provides eligible companies with free office space (at certain locations) for a period of time and the employees of the company pay no state income tax on their income (at least for the first five years, with a small amount possibly paid in years 5 through ten).  The Program is attempting to lure out-of-state companies into New York, while encouraging sprouting of new startups that otherwise may not have started without these benefits.  Overall New York is looking to add more jobs in the state, and the more jobs now (even with tax breaks) the more taxes the state can collect in teh future.  Read more

Domestic International Sales Corporations

Business Entity Formation, Choice of Entity, Startup Formation, Tax

If you export products for sale of any type and don’t know what an IC-DISC (or simply a DISC) is, or think it’s a round piece of plastic you put in your computer’s drive, then keep reading.  Any United States business with qualifying export sales can save a large amount of money with the use of a Interest Charge Domestic International Sales Corporation (referred to hereinafter as a “DISC”). Read more

Tax Treatment of S-Corp Payments to Shareholders

Choice of Entity, Tax

Shareholders who are employed by a corporation which has elected to be taxed as an S-Corp wear two hats.  They are investors in the entity (they contributed capital to get their shares initially) and allowed to get a return on their capital, and they are employees who receive wages.  When an owner/employee of an S-Corp (or an LLC which is taxed as an S-Corp) is on a salary from the S-Corp, the wages payable are subject to employment taxes, and distributions made to the owner of the S-Corp are not subject to employment taxes.  Also if the S-Corp was loaned money by the shareholder, the S-Corp can make payments to repay the loan to the shareholder, and these payments will not be subject to the employment tax.  Misclassifying payments as distributions or loan repayments, when they really should be wages can lead to an audit from the IRS.

In a recent case from the United States Tax Court (Glass Blocks Unlimited, TC Memo, 2013-180), Read more

Science & Technology Parks in China and Tax Free Zones in the U.S.

China, International, Tax

I recently sat in on a great panel about doing business in China hosted by the Manufacturer’s Association of Central New York (MACNY) put on by a client of mine, Tech Bridge International, Inc.  Tech Bridge is an international business development and quality consulting company.  It provides consulting services, connections and introductions to Chinese businesses and government officials for companies seeking to do business there (it also operates in Japan).

The conference was interesting for many reasons, but mainly because of the discussion regarding the industrial, science & technology parks in China and the innovation they were driving there.  I had intended to write a post on this a while back, and that’s why I was pleasantly surprised to hear Governor Cuomo’s Tax Free NY proposal yesterday, which he announced in a few Upstate New York cities (Albany, Buffalo, Syracuse). Read more

Series LLCs

Business Entity Formation, Choice of Entity, LLCs, Startup Formation, Tax

If you are one of those people who is tired of having to form seperate entities (LLCs or corporations) for each type of business you operate, or for each piece of real estate that you own, a Series LLC may be useful to you. Nearly a decade ago, the state of Delaware introduced a legal entity that would become known as the Series LLC. Despite its origins in Delaware, several other states have now started to permit the usage of Series LLCs.  Read more

The Marketplace Fairness Act of 2013 a/k/a the Internet Sales Tax Act

Tax, Uncategorized

As you may have heard, the Senate is working on a bill which looks like it may be passed on May 6th called the Marketplace Fairness Act of 2013.  If passed into law (it looks like the House will also approve it, but we’ll see) it would allow state governments to force Internet retailers to collect sales tax from their customers and remit the proceeds to the state and local governments where the purchaser lives. The States would have to provide free software to Internet retailers which would allow them to do the calculations, and Internet retailers with revenues under $1M would be exempt.  That’s some small relief.

There are seemingly two goals of the legislation.  The first is to fund state and local governments which are, for the most part, starved for cash and seeking any new revenue sources (ie tax moneys) they can find. Second, brick and mortar retailers claim that they are at a disadvantage because customers can come in and look at items in their stores, check the price of the item on their smart phone and then order the same item online and not have to pay any sales tax on it.

My thought is that the effect of the legislation, if passed into law, would be more economically stifling (from a nationwide perspective) than it would actually serve the goals it presumes to address. Read more

How to form a Single Member LLC in New York State

Business Entity Formation, Choice of Entity, LLCs, Startup Formation, Tax

There are a lot of small businesses out there operating as sole proprietorships, that is they operate the business through the individual(s), and there is no formal entity.  Many sole proprietors tell me that they’ve filed a d/b/a with the local county (here, the counties of Onondaga, Tompkins or Monroe), and therefore believe that is all they need to ensure that they are not personally liable, but this is not correct.

The main reason people incorporate or organize LLCs is to limit liability.  Debts and contractual obligations are not something that you want to owe personally if you can avoid it.  Setting up an LLC will create a seperate legal entity from yourself that you will operate the business through, own business assets, and contract through.  Not much has to change when you form a single member LLC.  LLC’s are also useful because the IRS will let you choose how you want the LLC taxed (either as a disregarded entity, S corp or C corp).

Read more

IRS’s “Check the Box” Regulations for LLCs

Business Entity Formation, Choice of Entity, LLCs, Tax

There are many reasons why LLCs can be great for business owners.  For those types of businesses that have revenue and don’t need outside investors or to issue stock options (although LLC profits interests can work), LLCs are a good choice.

For a lot of startup companies, a corporation may be the right choice, especially if it will be seeking investors, plans to be acquired by a larger player in the industry at some point, or would like to have an IPO or other offering. The choice for a lot of companies especially in the high tech sector is the corporation. But if those aren’t your goals, if you have a business plan, target market, product and are ready to sell and make revenue then an LLC may be the right choice for you. Whatever industry you are in, an LLC can be a beneficial entity to use. LLCs can do complex and sophisticated things with respect to splitting profits, can have interesting classes and structures, require less paperwork than would a corporation, and are by far more flexible. (I’ve kind of beat the LLC v. Corp. horse to death earlier so will get to the point now). One of the other great advantages of the LLC form is that it can elect (i.e. choose) to be taxed as either disregarded entity (if one member then a sole proprietorship, and if multiple members than a partnership), an S-corporation or a C-corporation.

Read more

Stock Appreciation Rights

Employees/Contractors, Securities, Stock, Stock Options, Tax

Another way to compensate employees of a corporation is to issue them Stock Appreciation Rights (“SARs” – not “sars – severe acute respiratory syndrome”, that’s something else).   SARs grant employees, usually higher level executives, the right to receive stock and/or cash at a future date in an amount pegged to the increase in value of the corporation’s shares of stock over a certain time period.  If the company’s share value increases, so to does the value of the SARs.   SARs often are offered along with traditional stock options, although they are granted seperately (if done with stock options, sometimes you will see them called “Tandem SARs”). Read more

New York’s Proposed Angel Investor Tax Credit

Accredited Investors, Angel Investors, Financing Your Business, Investors, Tax, Venture Capital

I’ve been following a bill proposed by New York Assembly member Kellner for a while now.  It is an Angel Investor Tax Credit, available to investors in “qualifying businesses”.   New York Bill No. A09958.  Investors would receive a credit based on 25% of their investment, but the maximum investment you can obtain the credit for is capped at $250,000.

A qualifying business is one that:

  1. has gross revenue of less than $1M for the year before the investment;
  2. has no more than 20 full time employees (60% must reside in NY State);
  3. has operated in the State of NY for no more than seven consecutive years; and
  4. has received no more than $2M in investments (eligible for the credit from one or more angel investors)

To be eligible for the credit, the angel investor must be an accredited investor as defined in Rule 501 of Regulation D, except for those that either 1. control fifty percent or more of the company being invested in, or 2. any company whose normal business activities include venture capital investment.

First, the idea is noteworthy.  A number of other states have passed similar credits to encourage angel investing.  In Wisconsin, they passed such a credit and angel investments increase from $30M in 2005 to $180M in 2010.  That’s staggering.   I would prefer to see that the credit be available for seed/angel and venture capital companies, however.  I think excluding them is a bad idea.

There are some critics of state angel investor tax credits.  They are usually out of state VC funds and investors.   They say that these types of credits would discourage interstate investing, such as Boston based VC’s investing in New York startups, and other such situations.  I don’t know if those critiques are warranted, however, as out-of-state investors aren’t penalized in any way other than having more competition in New York State.  As investors in-state are now sure they will at least recoup 25% of their investment in the year after they invest, as well as having the possibility for large returns (i.e. the home run) down the road.

The bill was referred to the ways and means committee in April and held for consideration there in June.  There hasn’t been much action on it since then and won’t be until at least 2013.  It is something to keep in mind however as any incentive that can be put on the table to get the economy moving, especially the startup community is a good idea.  Access to capital is a big issue for many young companies.