Can I hire Interns ?

[remozseo]

Planing to start my own C-Corp.

Can I also hire Interns or do I have to be already an established company?

[tallen]

Ideally you would have all of your paperwork in order (e.g. company established) before hiring anyone. Of course, the first person you should hire once the corporation is set up is yourself.

[Fulcrum]

Why an intern as opposed to paid help?

[BNB]

Goodness.....

[remozseo]

I am paying interns. I don't believe in unpaid training.

But you mentioned, I should hire myself first ? I actually don't want to hire myself. I am owning it, not running it.

And yes if course, before the company isn't formed I am not going to hire anyone. That's clear.

I just wasn't sure if you are only eligible to hire interns, if the company exists already since a couple years as a minimum requirement. Or with a minimum annual revenue or a minimum count of employees.

Sorry if my question was not specific enough. Does that make sense ?

[turboguy]

I am owning it, not running it.



Am I reading this to think you are wanting to hire an intern to run it?

I don't think there are any rules that require that a company be established to have access to interns. I do think established companies would have the inside track however. The goal is for the intern to get some hands on experience which often comes from working with others that have skills and established processes.

My limited experience is that it isn't all that easy to get interns. We have inquired about interns a few times but were never able to get one. I would love to have in intern looking for a career in engineering.

Another thing you might consider is that your county government or region may have some services that help new businesses get off the ground. We have one here. My former next door neighbor to my business was able to get a lot of money for remodeling and adding the equipment he needed and to have access to workers where the government paid half their wages for the first 6 months if they agreed to keep the employee for 2 years. I am not sure how much money that he thought was going to be free he got but well over 50 grand. Unfortunately it did end up putting him out of business when the free money ran out.

[tallen]

If you are an officer of the corporation and are materially involved in the business of the corporation (and not just a figurehead), then you must be treated as an employee of the corporation (paid a salary from which income and payroll taxes are withheld, etc....) -- that is why I say that after forming your corporation the next thing you will need to do is hire yourself. Now if you are just a shareholder and director, but not an executive officer of the corporation, and thus not actually involved in the day-to-day operations, then no, you don't need to treated as an employee -- but then presumably you will be hiring experienced professionals, and not interns, to serve as the executive officers.... This is one of the aspects associated with choosing the corporate form of organization for your business, as opposed to a sole proprietorship for example.

The next question I have is what do you mean by the term "intern?"

For me, the term generally means students from a college or university who are coming for a limited time period to gain specific experience related to their academic studies or learning goals, for which they may be paid and/or receive academic credit from their institution. Formal internship programs associated with colleges or university will have specific expectations about the type of experience their student will receive while placed with you.

[Business Attorney]

For me, the term generally means students from a college or university who are coming for a limited time period to gain specific experience related to their academic studies or learning goals, for which they may be paid and/or receive academic credit from their institution. Formal internship programs associated with colleges or university will have specific expectations about the type of experience their student will receive while placed with you.

Exactly. The IRS, the DOL and the state agencies regulating wages and hours may have slightly different definitions but to be on the safe side, the intern should either be paid a full minimum wage or receive academic credit. It is possible to have an internship that satisfies the basic requirement that there be a substantial learning component without providing academic credit, but it would be much more difficult to document that fact.

Many internships that provide academic credit also pay the intern a stipend, but not necessarily the minimum wage.

But to answer the basic question, if the supervisor of the intern provides guidance, evaluation, and feedback to facilitate the learning process, there is no minimum number of employees or years in business that are required, although an academic institution providing an intern is free to set its own higher requirements.

[Harold Mansfield]

Exactly. The IRS, the DOL and the state agencies regulating wages and hours may have slightly different definitions but to be on the safe side, the intern should either be paid a full minimum wage or receive academic credit. It is possible to have an internship that satisfies the basic requirement that there be a substantial learning component without providing academic credit, but it would be much more difficult to document that fact.

Many internships that provide academic credit also pay the intern a stipend, but not necessarily the minimum wage.

But to answer the basic question, if the supervisor of the intern provides guidance, evaluation, and feedback to facilitate the learning process, there is no minimum number of employees or years in business that are required, although an academic institution providing an intern is free to set its own higher requirements.

I would guess that in the situation of academic credit that the company employing the interns is working with the academic organization. Otherwise how is it considered an internship at all? If it's not connected to some other organization whether it be mentoring, business, or education, isn't it just an employee?

[remozseo]

@turboguy:
I don't want that an intern who should be trained is running the business. So the answer to your question is NO.

@tallen:
Hmm.. you made me think more about one thing. I for sure do want to have a C-Corp. I don't want to have a sole proprietorship. And I don't want to have a tax-through taxation.

But if I start a C-Corp, do I have to have Executives hired ?
Are there any regulations, any law that says: Once you have a C-Corp created, you HAVE TO HAVE at least one Executive Officer employed ?

I do understand .. that this question might sound confusing or strange. Who in heaven want's to own a company that has no one hired ?
How would that company even operate, right ?

But again.. even if this might sound like a really strange question.
Is that possible ?

Last but not least.. if possible.. I am thinking about being the owner, director and Executive Officer in one shot.
And as far as I remember, that's possible, right ?

[Harold Mansfield]

But if I start a C-Corp, do I have to have Executives hired ?
Are there any regulations, any law that says: Once you have a C-Corp created, you HAVE TO HAVE at least one Executive Officer employed ?

I do understand .. that this question might sound confusing or strange. Who in heaven want's to own a company that has no one hired ?
How would that company even operate, right ?

But again.. even if this might sound like a really strange question.
Is that possible ?

Last but not least.. if possible.. I am thinking about being the owner, director and Executive Officer in one shot.
And as far as I remember, that's possible, right ?

It sounds like you are either completely over thinking incorporation, or there's something specific that you are trying to do or avoid doing for a company that doesn't even exist yet.
How about we start with what you are trying to do.

In a nutshell, no you cannot incorporate in any way, shape or form anonymously or with no one in charge.
That's not to say that you have to pay salaries. You don't. But someone needs to be on the paperwork and you can call them whatever you want.

[tallen]

I don't know of any reason why a single person cannot be the sole shareholder, director, and all of the officers (typically, you would be expected to name a President, a Treasurer, and a Secretary), but really you should consult with an attorney familiar with the relevant laws in your state of incorporation.... As to whether you have to have any employees, I suppose one could try to operate solely with independent contractors, but the officer(s) are still likely going to be expected to be handled as employees. Again, you really should consult with an attorney, or in this case possibly an accountant (or maybe both!). I am neither, just some stranger on the internet....

[turboguy]

I don't know of any reason why a single person cannot be the sole shareholder, director, and all of the officers

I am President, VP, Secretary, and treasurer of my incorporated business as well as the only stockholder and director. The corporation was set up by a very large professional law firm and my accountant lists the officers on my tax return and they are a large professional firm that knows what they are doing.

[tallen]

I am President, VP, Secretary, and treasurer of my incorporated business as well as the only stockholder and director. The corporation was set up by a very large professional law firm and my accountant lists the officers on my tax return and they are a large professional firm that knows what they are doing.

Ray, I have highlighted for the OP the important parts ;)

[remozseo]

ok.. to make that easy and to answer the question what I want to do.

I am full time employed at another company. And I started my own business last year.
I am making a good amount of money and step by step, I want to shift over full time working for my own company.

However.. the shift and change has to happen over time.
I am not jumping right away into that adventure.

Since I made a good amount of money already last year.. I am hit hard with taxes.
Since everything I made so far, is just taxed on myself.. as a one man show.. and MISC Income on top of my annual salary.

And I have not many options to use lot's of expenses for the company, and I also can't use write offs and other tax benefits a corporation benefits from.


Since I am a one man show.. and I don't want to have a tax-through taxation, since this wouldn't help me at all at this point.

So I am thinking to start my own C-Corp.
And I have one person that helped me last year a lot. And that person I would like to offer a paid internship for 6 month.
After that 6 month, I want to hire this person full time.

As you can see.. nothing special.. just working hard for my own startup and I want to make sure I have a smooth transition.
I hope that makes sense.

Now the structure makes possible more sense.. having my own C-Corp and being treated as an independent company with it's own taxation.
I am not really considering paying myself the first two years... since I would need to re-invest any profit into the growth of the company.

I personally would train the intern about 20 hrs a week.

Now that being said.. I was not sure, once a C-Corp is created on paper.. up and running.. if I HAVE TO EMPLOY people by law.
And I was wondering, if you can just form and create a Corporation, no one is employed, but you still can make revenue and profit.

For me.. it's a bit strange.. because I asked myself the question.. how can a Corporation make profit... even generate revenue... if there are no people employed ?
I am 100% accurate with laws and paying taxes.. and want to avoid any issues.

And because that question came up.. I was confused...
But so far, I got the feedback that I can create a Corporation on paper.. I can be the Owner, President, Executive Officer, and Shareholder... and I don't need to employ anyone in order to generate revenue, and in order to run a business.
Well yes.. is this true ?

Thanks a lot for all your thoughts, inputs, experience, advise and any little help !
Every feedback and thought is welcome and highly appreciated !

[Fulcrum]

I am full time employed at another company. And I started my own business last year.
I am making a good amount of money and step by step, I want to shift over full time working for my own company.

Great to hear this.



However.. the shift and change has to happen over time.
I am not jumping right away into that adventure.

Hmm, this is curious and a bit concerning.



Since I made a good amount of money already last year.. I am hit hard with taxes.
Since everything I made so far, is just taxed on myself.. as a one man show.. and MISC Income on top of my annual salary.

If your profits are high enough to move you into the next tax bracket, your income should be enough to go full time without needing the anchor that your current job will become.



And I have not many options to use lot's of expenses for the company, and I also can't use write offs and other tax benefits a corporation benefits from.

Write offs come and write offs go. Don't go out of your way right now to try and find them.



I am not really considering paying myself the first two years... since I would need to re-invest any profit into the growth of the company.

The joys of a start up. Often a little hunger in the belly can be a good thing when getting going. Pushes you to generate more sales.


Everything else

You're overthinking this. You really need to sit down with an accountant familiar with your business type (BTW, what business are you in?). They are the only people who can give you truly reliable advice. Even though some of us may trust the judgement of our peers on this board, we would be remiss and taking a huge risk by not confirming what they say.

[Business Attorney]

Although using a C corporation is relatively rare among closely held companies, there are situations where it makes sense. If there is a reason to accumulate a moderate amount of cash or build up other assets such as inventory or equipment, the low 15% marginal tax rate on the first $50,000 of taxable income can be attractive. If an individual is in a 35% tax bracket, using a pass-through entity such as an LLC or S corporation would leave him with only $32,500 to plow back into the business, while a C corporation would leave $42,500, an increase of $10,000.

Of course, with double taxation and other complications, it is not as simple as that, but the fact is someone is not necessarily crazy to believe that in their own case, starting out with a C corporation may make sense. Besides, he can always make the S election later.

The key is to make sure that someone who understands the full implications of the decision is advising you.

[remozseo]

I am full time employed. At that job I make 120k a year. I love that job and don't want to give it up. Fir sure not now.

My business I started on the side generates about 60-70k a year. And yes.. I can say it's pure profit... not revenue.

I want to keep both. I love both. But the fact that all the money is literally profit doesn't allow me to grow a lot. And yes, I am hit hard with taxes.

So what I want to do is clear. By creating the C Corp I want to make sure that the extra money I make on the side is not taxed as high. It's better to pay 15% for the first 50k compared to 50% with my personal income.

The C Corp allows me to have more business expenses and also lowers immediately my income. Because it's treated as its own taxable unit. And the money I am making on the side will not be counted as one big income as a private person.

Saying. It makes a big difference on taxes if I make 120k a year as a private person or 180k. Or any LLC ...because a tax-through taxation doesn't help me here at all.

That's why even Warren Buffet always kept his own paycheck relatively low. Because everyone knows that it's the worst thing to do. Paying you a high salary.

Instead I want to use that money to grow the wealth of my company. Saying .....

I could own a business thats worth 1 Million Dollar but paying me only 50k a year. I am thinking long term.

And building an asset that hopefully can hire more people. If the company grows, I grow and my wealth grows. Better than pumping any money into stocks I simple can't control.


So that's how I see it. What are your thoughts ?

[BNB]

What am I not getting here? If you are building up assets and equipment, reinvesting into the company, then these are all write-offs. You don't pay taxes on that, anyway. If you pay 15% taxes on what is left, eventually you will end up paying that money to someone, yourself in a couple of years, and you will be taxed on it again. Double taxation. It's never quite that simple, but the moment you decide to get paid by your company, you are going to be taxed... again. I guess that could be beneficial because of our progressive tax rates. So when you switch full time to your own company, not ALL of that extra income is taxed at the top rate. It's an interesting scenario.

[Business Attorney]

Inventory is not "a write off" - it takes cash to build inventory. You only deduct inventory as a component of cost of goods SOLD.

With the increased limits for section 179, equipment purchases are now essentially 100% deductible for small businesses.

There are other uses of cash, such as purchases of land, where there is no tax deduction. Or a business may simply need to build up cash within the business for future needs.

As I said, in the vast majority of situations, a pass-through entity makes more sense. However, there are situations where a C corporation makes sense from a tax standpoint. And yes it is a function of progressive rates.

[remozseo]

Sorry for my late reply. Was super busy. Here we go.

@BNB:
For me it's very clear that a C-Corp is much better for taxes. Especially being in my situation. Let me explain my perspective of view.

I am full-time employed. I am getting taxed on all my personal income. My average progressive tax rate is already 28% - that percentage considers FED and State Income Tax combined.
Any additional income will be taxed higher, higher and higher up to 40%.

The only way to avoid this ?
You create a C-Corp. The first 50k of the Corporation Profit is taxed with 15% only.
Dividends .. I am not quite sure how this works.. maybe someone can tell me... here an example:


Corporation 50k annual profit:
Corporation is taxed with 50k profit = 15%
Let's say, the Corporation pays 25k on dividends.

The Person who receives the 25k Dividends = is taxed with 15%.

Has the Corporation to pay again on the 25k that was payed to the shareholder ?
I think.. once the Corporation already payed taxes on the full profit of 50k, there are no more taxes to pay, right ?

WOULD LOVE TO FULLY UNDERSTAND THIS PART !!!
WHO CAN ENLIGHTEN ME ?


Double taxation. It's never quite that simple, but the moment you decide to get paid by your company, you are going to be taxed... again
Yes. This is true. That's why you shouldn't pay yourself.

Instead, I will get dividends. Up to 150k a year, taxed with 15%.
A significant big difference.

see here:
Taxes on Income and Capital Gains for 2016 (http://www.schwab.com/public/schwab/nn/articles/Taxes-Whats-New)



@Business Attorney:

However, there are situations where a C corporation makes sense from a tax standpoint. And yes it is a function of progressive rates.
Exactly. I see it the same. But no matter what.

Actually.. as more profit you make, as more it makes sense to have multiple companies.
For each service one. Why ? Because you lower taxes. Not really my goal to create multiple corporations just because of tax purposes.
However.. that's the frame and the rules given by the system.

Sooo.. now I am really curious what you all have to say about these facts.

[turboguy]

If you selected the C corp. status for your business, you would end up paying more taxes. Here is why...first, your business would use 25% bracket to pay Fed income tax on $60,000. That is about $ 11,000 or 18% of the income. As you distribute what is left to yourself at some point in the future, you would pay an additional 15% on the amount of $49,000 because you and your C corp business would be two separate entities. Therefore, your business income would be taxed at 33% (18+15). However, if you selected a pass-through status for your business, you would pay only 28% of Fed income taxes on the $60,000, given your salary is $120,000.
Irene

[turboguy]

Once your C corp. has paid taxes on the $50,000 of the profit, the individual or people who receive the after tax profit pay an additional 15% of taxes.
Irene