

Ask HN: Startup investment runway and taxes - princehonest

Let&#x27;s say you get into YC. You are a new startup with $120K investment, 2 cofounders, each paying themselves a $2K after-tax monthly salary with biz expenses around $1K&#x2F;month.<p>What do the taxes look like? How does the investment get taxed before its used? What factors would you use to calculate the startup&#x27;s runway? How much runway does the startup have?
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patio11
You'll have a professional do the corporate taxes. Briefly, you'll expect that
for the first several years of the business, possibly continuing through exit,
the business will have negative profits. Accordingly, your _income_ tax bill
_for the corporation_ will be $0 every year. You'll expect to continue booking
tax losses as an asset on the balance sheet against that day in the future
when your business actually has profits. You will likely pay many taxes which
are not founded on income, most prominently California franchise tax for YC
startups, which has a minimum of about $1k a year or so.

The fact that the corporation received $120k from YC or $10 million from angel
investors is immaterial. Those flows of money do not represent
revenue/profits. They are not subject to income tax (nor any other tax that I
am aware of).

The approximate runway of a company with $120k in the bank and 2 co-founders
at ramen wages with $1k a month in OpEx is ~18 months as of the current moment
in time. Napkin math: $6k to pay both founders ~$2k salary plus pay direct
costs of employing them, $1k in OpEx, divide.

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pjungwir
I'd stress talking with a professional. You'll probably need to pay
state+federal unemployment tax and disability insurance, plus you'll need to
do FICA withholding on the salaries you're paying yourselves. If you forget
that and write yourselves a check for your whole paycheck, you'll wind up with
a larger tax bill later.

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rpedela
Investments are not taxed.

You will most likely operate with a loss for the first year so your tax bill
will be $0. And then you will be able to carry-over any losses to subsequent
years which will reduce or eliminate your corporate tax bill in those years.
Get a professional for the carry-over stuff. As patio11 said, there are often
minimum state taxes. I believe California is ~$800 and Delaware is ~$200 or
more.

You will of course have to pay income tax on wages individually. If you are
considered employees then the company also has to pay a portion of the payroll
tax. If consultants, then the company does not need to pay payroll tax. Talk
to a lawyer about which is appropriate for the founders.

runway (number of months) = (total - one-time expenses) / monthly expenses

