Implications of Delaware C-Corp for personal and business tax

[Dev]

Hello,

In July 2017 I incorporated a company structured as Delaware C-corp. I am the sole founder/employee of this company. The company does not have any income yet. As part of incorporating the company I received shares of company's common stock. From Sept 2016 - till March 2018 I have spent around 15K towards setting up the company (incorporation expenses, legal expenses, website, etc.).

I have following questions:

1) On my personal income tax return, is it possible to deduct 15K that I put in towards setting up the company from our joint family income? (I will be filing a joint return with my wife.)

2) How do the shares of the common stock that I received as part of company incorporation factor into my personal income tax?

3) The company does not have any income yet. What business tax do I need to file and what documents do I need? (I am based in Texas.)

Thank you for your help!

Regards,

Dev

[PatriciaV]

First, the expenses you incurred to incorporate the business are considered Start-Up Costs for the company. In exchange for these expenses, you received equity that forms your basis in the corporate stock. In other words, you now have stock worth $15,000. The business has start-up costs that are partially deductible and partially amortized. This would be reported on the company's Federal tax return.

See this link for more: IRS Pub 535 Business Start-Up and Organizational Costs

While you now have an investment in stock, you won't report this on your tax return. Any dividends paid to you (or wages, if you become an employee of the corporate) are taxable income.

Since you incorporated in Delaware, you will likely need to file a Delaware business return, and possibly other corporate filings as well. Most corporations use an agent to represent the company in a state where the owner is not a resident. Here's a link to the Delaware Secretary of State: https://corp.delaware.gov/frtax.shtml

Any income earned by the corporation within Texas may require a Texas tax return as well. Check with the Secretary of State for more assistance: http://www.sos.state.tx.us/corp/foreign_outofstate.shtml

You may wish to contact the legal firm that set up your corporation to be sure you are complying with all state and federal laws regarding taxation and reporting.

[Dev]

Hi Patricia,

Thank you for the reply.

I have one more follow-up question.

How are the business Start-Up costs accommodated in personal returns? Can they be treated as Itemized deductions, or some other deduction, when preparing personal returns?

Thanks!