

Foreign startup, US venture capital, and taxation - philiphodgen
http://hodgen.com/foreign-startup-us-venture-capital-and-taxation/

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timmyd
"The difference between what you pay for a domain name ($10) and what you sell
it for ($6,000,000) is taxable income.

Hilarity ensued."

Huge problem that most startups don't realise from the get-go. IP transfer is
a huge issue and it needs to be right from the beginning - that's why seperate
holding companies for IP [ala Skype] are typically a good organisational
alternative.

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elai
Aaaaahhhhhhh. What would you suggest for people setting up startups setup as a
general structure before everything getting properly started to avoid things
like the 6 million dollar domain name headache after your MVP has some
traction, but not 'too much' traction. Assume it's the typical SaaS/software
business.

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philiphodgen
If you're a nonresident of the United States, own the domain name as a human.
If you have a company formed outside the United States, that can be an owner,
too.

For the IP you develop, start with the assumption that whoever pays for the
work to be done = owner. The humans working on the code should be employees of
the company outside the United States, or independent contractors working for
the company outside the United States. This is the "work for hire" idea.

If you've done things wrong, it's better to fix it while the company is still
growing and not too profitable. If there is a tax problem it won't be too big.
After all, what is the value of a domain name for a typical SaaS situation
when it's only making a few thousand a month at the moment? Not much.

The future lies ahead, etc. etc., but at the moment the assets (and code)
could reasonably be valued at approximately what you paid to develop them. If
you spent $50,000 to get to this point and you're at break-even, arguably the
value of the domain name and all of your code and your traction so far is
close to $50,000. You're selling for what you spent to buy the asset. Zero
tax.

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elai
Thanks for the answer!

I'm a Canadian that works in the US on a TN. Would it probably be a bad idea
to get a green card even if I have future bay area startup aspirations?

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philiphodgen
Second thought. Completely unrelated but it comes up again and again and
again.

If you're here in the USA and you have an RRSP in Canada, be sure you file
Form 8891 to make it tax exempt in the USA. If you're living in California
guess what -- the earnings inside your RRSP are tax free on your US income tax
return (Form 1040) but your RRSP earnings are taxable in California (Form
540).

Also don't forget Form TD F 90-22.1 -- the dreaded FBAR form. You're living
here in the USA, so you're a resident and obliged on pain of death (I only
slightly exaggerate) to disclose all of your foreign financial accounts. That
means all of your Canadian accounts including RRSPs if you have them.

