Specific startup tax question and other starting advice
I'm in the process of creating a startup. Right now it's just a series of apps in the iTunes app store but there's a ton more I want to do with it. The apps were made available for sale almost 3 months ago and have remained consistently towards the top of the paid travel apps section. I'm making good money, not a ton but it's not trivial either and sales do seem to be growing.
My first question is about forming a company for tax purposes. I have not formed a company yet and right now I would like all money that the apps make to be assets of the company when it does get formed. Is it already too late to transfer current earnings since the apps are in my name and linked to my personal accounts (iTunes and banking) or can I transfer previous earnings to the new company? Do I need to form the company and transfer assets before the end of the year for this years earnings or can I wait until after the holiday season? Do I need to get professional consulting on what type of corp to form or is this an easy decision to make based on my situation?
What about an accountant, I should probably have one of those already, right? And what about legal counsel? I could easily have 6 figure revenue for next year and want to make sure I cover all my bases. I have some legal questions about what I've done already and questions concerning plans I have for the future.
I'm local to San Francisco and would like to keep all my dealings locally if possible, I'm just not sure what to focus on or where to start (besides further development on my product!). I had applied to YC hoping all these questions could be answered and worked on during this current winter session but didn't get an interview, sorry, you guys are my second choice!
2 Answers
I am not a lawyer or an accountant, just someone who has slogged through this stuff before :]
- Get an accountant - sorting this stuff out is a real pain. These guys or gals do this all the time and it's pretty simple for them to do your filing. Based on your potential revenue you may need to start filing quarterly and it's worth it.
- Have a friend / business associate recommend a lawyer. You may not even need them right now, but having one already picked out that is familiar with your industry could be critical in the future.
- Some states you can form an LLC with one person. I would suggest an LLC if possible as it will give you some personal production (Limited Liability) but taxes are still straight forward.
- Since you don't deal with anyone local and are all online sales you could potentially get creative and incorporate in Nevada and avoid paying corporate income tax - more info
- If you do something like an LLC or sole proprietorship you should be able to create new bank accounts and just move your money over to that. Just make a good paper trail of that. You'll want to operate your business like a business and never co-mingle any personal funds once you get rolling. But, you can do this since your taxes will be filed along with your personal taxes. Shouldn't be a big deal, uncle Sam will still be getting his - so he should be fine.
- Congrats and good luck.
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Jan, @ryan is right, you do need an accountant or at least a book keeper. The reason for this is it will save you money. An accountant can give you the basic advice on what business structure is best for you. They can also help organize your income in a way that most beneficial to you for tax reasons. As far as your current YTD income, you can declare that on a new company as along as its in a 12 month period. Most people would not, and your bookkeeper or accountant will have further advice. Its worth setting up an LLC or S corp in my opinion. With your success you want to start.. – Frank 14 years ago
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..planning on future growth. You will be better served by having a company that can more easily hire employees, have its own company bank account, and differentiate the income you make from it as a stand alone business. My company doesn't do Iphone apps, but we do business apps. We are a corporation, and setup a new LLC for each product we run. The corporation owns the LLCs, and we own the corporation. There are a lot of options for you,, but most important, KEEP UP THE GOOD WORK!!! Congrats on your success. You have figured out the formula, think of creative ways where you can increase – Frank 14 years ago
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the number of apps you offer, and the number of sales they get. Once you have a formula, the trick is to refine it, and duplicate it as many times possible. 10x and you could be doing extremely well. – Frank 14 years ago
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Thanks for the answer Ryan and thanks for the additional comments Franky. Sounds like first two steps are LLC and accountant. @Franky: I did have the thought that once I move into the Android market it could be under a new LLC since the work could be contracted and revenue formula will probably be a little different, I think you might have confirmed that. I am pushing out new versions as quickly as I can based on what's requested and where the biggest user base might be. My intended revenue stream is not app sales but the sales are providing a great runway for when I start to transition.Thank! – Jan 14 years ago
You can form a corporation anytime you like, whether it be in the early stage, or very late stage. This stage is fine for starting a corporation or LLC.
For tax purposes, you can do a transaction that lets you put all of the assets into the corporation or LLC tax free but you will likely need professional help for this as the transaction is not easy. Once this is done for tax purposes, the corporation or LLC can own all of the IP, cash, and other assets, and you can hold the stock/membership interest in that corporation.
Once this process is set up, unless you are creating a member-managed LLC, you will need an accountant to help file quarterly payroll tax returns for you as an officer of the corporation/LLC.
