

Ask HN: How do you pay yourselves? - ryanelkins

I'm aware this can vary by quite a bit by where people are. I'm involved in a local incubator, techstars/y-combinatoresque type of program (called BoomStartup). My cofounder and I are trying to figure out the best way to pay ourselves (to pay for rent, food, etc). We've been talking with a few people including financial people and attorneys but there hasn't yet been a good consensus on any of these three main options: 1) Pay ourselves as employees and deal with payroll taxes; 2) Pay ourselves as contractors and deal with taxes later; 3) Pay a dividend based on shares and pay capital gains tax (and we'd have to set something up with the incubator so we don't pay them for the shares they are holding, which we've already discussed with them and they are totally fine with doing - they are the only other people on our cap table).<p>I just thought I'd see what suggestions people here might have regarding this. I'm still trying to figure out the benefits and consequences of each method.
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byoung2
_I'm involved in a local incubator, techstars/y-combinatoresque type of
program (called BoomStartup)_

They should have someone who can advise you on this. I think if you are at
this early stage, you should be paying these expenses out of your savings. Was
the money from the incubator paid to you personally, or the business?

If your startup is currently making money, you should be reinvesting that into
the business. If it's you and a cofounder in a small apartment/office, you can
probably pay rent, electricity, internet, etc., from the business checking
account.

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cperciva
IANAL, but the "pay a dividend" approach can cause problems. It's generally
illegal to pay a dividend which makes a company insolvent (for some definition
of "insolvent"); and in many jurisdictions it's also illegal to pay dividends
beyond a company's profits (for some definition of "profits").

If the company is spectacularly successful none of this will matter, of course
-- but if the company fails, you'll want to be able to put it behind you
without being hauled into court by allegations of fraudulent conveyance.

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waivej
Initially I moved savings into the business and started taking a draw. It
might make sense to do this as payroll. I think regularity is important so you
can ignore home issues and focus on the business.

For several years, I've given myself a bimonthly check. When I hired an
employee, he got the same rate. It's relatively low, but keeps me frugal at
home.

Eventually, I added a $15/month retirement deposit. It was all I could afford
at the time and eventually increased it to $416/mo. (max a Roth IRA allows).

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AmberShah
I haven't gotten to the point of paying myself, but I'd probably just pick the
easiest thing - paying myself as an employee. I think there are calculators
online that show how much to deduct, etc. And then you avoid shooting yourself
in the foot by paying a huge percentage come tax season (if you did it as a
contractor).

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apowell
My understanding is that the correct way to handle this is to pay yourself as
an employee.

I run my personal payroll through Intuit online payroll with direct deposit.
It costs me a few bucks each month, but the time I spend not thinking about
payroll is well worth it.

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cgherb911
You're paying yourself? I would highly suggest keeping as much cash in the
business as possible and put off paying yourself for as long as possible.
You'll suffer now but thank yourself later. Get entrepreneurial on how to
score free rent and food.

~~~
philwelch
Scoring free rent and food sounds like almost as much work as the startup
itself.

I guess if you're in a college town, you could just pretend to be a student
and attend student club meetings for the free pizza. I don't know how to
handle the rent. You could always seduce girls, I guess. But that seems time
consuming. And if you can score free food and seduce girls _already_ , maybe
your youth would be better spent that way rather than in a startup?

