My own corporation's stock

[Don Quixote de la Mancha]

On Tue, Oct 27, 2009 at 9:16 AM, Anthony <gnucash at inbox.org> wrote:
> It's not a problem if it's done right.  Your first email suggests to
> me that you're not doing it right.  But it's not something I feel like
> getting into an argument about, it's not something I feel I can give
> general advice about, and I'm not interested in getting into all the
> nitty gritty details with you.

No worries - I have taken no offense, and don't feel the least bit
argumentative.

I know better than most how important it is to do things By The Books.
 This isn't the first corporation I've owned.  I managed to screw up
my first corporation in more ways than you could ever possibly
imagine.  I expect to be paying for all those mistakes for many years
to come.

But I have learned from all those mistakes, and am taking a great deal
of care to manage Dulcinea the right way.

I have a friend who has a successful business.  He seems to hold his
accountant in high regard, so I'll ask for her number and make an
appointment with her as soon as I am able to.  It shouldn't be that
long from now.

> Something to ask yourself: how are you valuing the stock?  How does
> the IRS want you to value it?

I would never have suspected that would be a problem.  Perhaps I'm
wrong, but my understanding was that if it wasn't publicly traded, the
company would just set a fixed price per share, and that price would
only change if the owners of the privately-held stock were to sell it
for some other price.

> Presumably you want to be able to deduct those expenses, though.  And
> you need to calculate the basis of the stock in order to minimize your
> capital gains taxes.

Understood.

> This part I'd definitely recommend getting rid of.  Open a corporate
> checking account.  Then buy stock from the corporation, or loan money
> to the corporation, and then let the corporation pay for its own
> expenses.

Yes, that is what I have done.  I had to pay Dulcinea's expenses out
of my own pocket before I was able to open the account, but now that I
have one the company will be paying its own way.  If it doesn't have
enough money, then I'll write a personal check and deposit it in the
corporate account.  Until I can settle the stock issues, I'll account
for that as a loan.

> If the business gets audited, and you haven't run things this way, the
> IRS is going to have a field day.  Keep your corporation and personal
> expenses separate.  I'm sure the book you read told you how important
> that is.

I understand this better than you might realize. :-/

> It is.  But it's difficult to account for, and if it isn't done right
> you and your employees will owe lots more in taxes than if it is done
> right.

> If you don't issue any stock, then what do you have to record?  It
> needs to be recorded at the time it happens, or else you can expect to
> pay twice as much when the accountant tries to clean it up later.

I'll need to record the fact that the company all owes us for our
money or for our labor.  I don't think it will need to have anything
to do with actual stock transactions until a few months from now.  By
then I'm quite sure I'll have been able to get an accountant's advice.

> At least sit down with a tax pro for a couple hours.  You can probably
> even find one that will give you a free (usually one-hour)
> consultation.

I don't have any objections at all to paying for good advice.  It's
just that it's going to have to wait until I actually have the cash to
pay for it.  But I'm hoping it won't have to be very long from now.

Thanks Again,

Mike
-- 
Don Quixote de la Mancha
quixote at dulcineatech.com
http://www.dulcineatech.com

   Dulcinea Technologies Corporation: Software of Elegance and Beauty.