I am not going to try to provide advice to this company (relative); however I am curious about several factors in starting a new Sub S Corp.
Single shareholder, $300 initial capitalization. Business will operate as a commission agent for a national freight forwarding concern. The national firm will "advance" all operating costs for first six month up to a maximum of $50,000.
Company is required to hire two inside customer service reps and will have payroll expenses of approx $20,000 by year end. Sole shareholder will operate as an outside sales rep with car/travel/entertainment expenses and with office rent/telephone/etc will incur another $10,000 in operating costs.
Revenue is generated as a sharing (65%-35%) of profit generated on shipments and the 35% to S-Corp is paid 30-45 days after shipment. Best guess is revenue received by end of year will be around $10,000; earned could approach $15,000 (accrual basis).
Simply stated, the business will have a loss of of at least $20,000.
Some questions:
1) Will the "advance of operating costs" possibly be considered income?
2) Can the stockholder take a non-reportable "draw or advance or loan" from the company in an equivalent salary amount-say $20,000? (ok with national company)
3) Will the "loss pass thru" be limited to his basis, i.e. $300?
This individual has extensive experience in the freight industry as a sales rep and his peers with this particular freight service are regularly earning $80-$120k annually after covering their operating expenses. Will appreciate you comments. Thanks!
Single shareholder, $300 initial capitalization. Business will operate as a commission agent for a national freight forwarding concern. The national firm will "advance" all operating costs for first six month up to a maximum of $50,000.
Company is required to hire two inside customer service reps and will have payroll expenses of approx $20,000 by year end. Sole shareholder will operate as an outside sales rep with car/travel/entertainment expenses and with office rent/telephone/etc will incur another $10,000 in operating costs.
Revenue is generated as a sharing (65%-35%) of profit generated on shipments and the 35% to S-Corp is paid 30-45 days after shipment. Best guess is revenue received by end of year will be around $10,000; earned could approach $15,000 (accrual basis).
Simply stated, the business will have a loss of of at least $20,000.
Some questions:
1) Will the "advance of operating costs" possibly be considered income?
2) Can the stockholder take a non-reportable "draw or advance or loan" from the company in an equivalent salary amount-say $20,000? (ok with national company)
3) Will the "loss pass thru" be limited to his basis, i.e. $300?
This individual has extensive experience in the freight industry as a sales rep and his peers with this particular freight service are regularly earning $80-$120k annually after covering their operating expenses. Will appreciate you comments. Thanks!
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