I'm saving up 3 years worth of runway ($300K), after which I'm going to start my own SaaS company. For the idea I have in mind, it will take a while to build out. So it might go something like this:
Year 1-2: No revenue. $20k/year in cloud and contractor expenses. $80k/year in personal living costs, health insurance, etc.
Year 3: Hopefully revenue starts coming in, otherwise back to the rat race.
In year 3, assuming it hits escape velocity and I can make enough to live on, then S-Corp will be the perfect structure from a taxation point of view. I can do the 60/40 salary/distributions approach, and take advantage of the recent 20% deduction for pass-through entities*.
But what about the first and possibly second year while there is no revenue? I plan to do an S-corp from day 1, since the ultimate goal is to get to significant revenues by year 3. I will incur losses those first two years that I will want to carry forward, for things like paying contractors to help me build the SaaS. So having an S-corp and a corporate credit card seems like a great way to easily separate all those expenses.
How do I "fund" the business? With no revenue, and with the business needing to pay some expenses like cloud servers, paying for contractors, I will need to take some of my runway money and put it into the business checking / credit accounts. Is it as simple as getting a corporate credit card and then paying it off using my personal runway funds? Or should I do a lump sum initial funding of the business, like transfer over $100K into the business so that it can get itself off the ground, and then pay the corporate credit card out of the business checking?
Some other areas that are super murky that I'd love to get some advice on:
* 401k/IRA - I would want to max out my 401K and IRA contributions from day 1 as well, so I would contribute to a solo 401k from my personal savings. Could I setup employer matching? Or will the business have to generate some revenue before I can do employer matching?
* Health Care - I will need a health care plan, would I just pay that out of pocket or am I better off setting up an employer health care plan? Again, will the business need revenue first?
* Social Security - During these two years I won't be taking a salary and therefore won't be paying self-employment tax and paying into social security. That seems like a bad thing, because I will have less social security paid when I retire. Is there any way to pay into social security even without getting a salary?
* Other stuff? - Will I have to deal with things like workers comp insurance in this case? Company life insurance plan?
* From Listen Money Matters, episode on Feb 11, 2019.