Author Topic: Strategies for getting into startup using sweat equity?  (Read 1177 times)

bilmar

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Strategies for getting into startup using sweat equity?
« on: April 23, 2015, 05:01:23 PM »
I have been retired now for 4 whole months and have been approached by a friend who has a startup C corp and wants my help.
He can't afford my rates but can pay in stock - i.e. sweat equity.

I thought this sounded good until I found out that the IRS treats stock awards as income so if I get $100k 'worth' of stock then that is my income for this year, Then,  I lose my ACA subsidy and have to pay tax on that $100K even though I got no actual money and my stock may be worthless if the business fails!

Any recommendations for legal ways around this?

Thanks

Bill

BlueHouse

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Re: Strategies for getting into startup using sweat equity?
« Reply #1 on: April 23, 2015, 05:08:29 PM »
Can't you defer compensation?
Sometimes nothing can be a real cool hand

bacchi

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Re: Strategies for getting into startup using sweat equity?
« Reply #2 on: April 24, 2015, 07:28:28 PM »
Get cheap incentive stock options (ISOs) with very favorable terms and a $1 salary.

For example, 20% of the company at $.05/share vesting over 4 years with a termination clause (e.g., if you leave or get fired, you have 6 months to exercise). Add in an acceleration clause, too, if you want.

Now you're investing in the company and there is no income to report.

If the company continues to look promising, you can exercise some options and file an IRS 83-b.

bilmar

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Re: Strategies for getting into startup using sweat equity?
« Reply #3 on: April 25, 2015, 10:38:07 AM »
Good ideas

I don't want to go down  the deferred compensation path because if this flies then the stockholders will make lots of money!

ISO's looks like a good strategy and I am going to research this carfully.

Thanks again for the tips