My own corporation's stock

[Anthony]

On Tue, Oct 27, 2009 at 11:46 AM, Don Quixote de la Mancha
<quixote at dulcineatech.com> wrote:
> On Wed, Oct 21, 2009 at 7:42 PM, Anthony <gnucash at inbox.org> wrote:
>> Stop right now and go talk to a tax professional.  You are creating a
>> huge mess and significant tax liabilities (for your corporation, for
>> yourself, for your fellow board members, and for your employee).
>
> I fully intend to get professional advice, but I'd be grateful if you
> could give me at least a clue as to why it would be a problem for all
> of us to be paid with stock.

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.

> I do expect that tax would be due for salary paid in the form of
> stock, but I don't see how that would be any kind of problem - I would
> calculate the withholding just like I would for salary paid in cash,
> and pay it down at my bank with a Federal Tax Deposit Coupon.

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

> I wouldn't expect to owe any tax for stock granted to me in return for
> spending my own money, until some time in the future when I sell my
> stock, at which point I may owe Capital Gains tax.

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.

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.

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.

>There are several places in the book where he specifically
> says that it's completely appropriate for one to be paid with stock,
> provided that this stock is compensation for work that has actually
> been done.

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.


> I will promise you that my company won't actually issue any stock
> until I have spoken to a professional.

Then I'll let that professional tell you all these things.

> My concern was really how to
> record it all in GnuCash until I was able to pay for an accountant -
> money is quite tight for me these days, but it won't always be.

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.

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.