I have worked about half time over three decades on a problem which I recently solved and am developing for a new venture. "Simple" conceptual solution - which took a long trail of reframing to get to. The complete solution is a layered series (actually a cycle) of partial solutions. Each partial solution except one from fields I never expected to be involved. Lots of work left to implement well, but this is the "easy" part.
Getting taxed on any increases in value early would feel very unfair. I have already put in so much value, for nothing in liquid/credible valuation yet, that things would have to go very well to compare equitably with what could sensibly have been expected if I had accrued half-time earnings, continuously saving and investing that income in its entirety, for over three decades.
Further worries: If I don't want to accept any venture capital, and at least for the foreseeable future bootstrap, would I somehow be forced into needing to liquidate ownership based on some accrued wealth rule anyway?
Hopefully not.
But if capital raises are the trigger for accrued wealth taxes, even a small raise after bootstrapped success gets ugly. Imagine raising capital after achieving bootstrapped success, by selling 1%, only to have to pay taxes on 99% of the company's new valuation! That would create a severe disincentive to take any capital ever, after bootstrapped success.
My suggestion: Only tax valuation gains on the sold shares. The realized valuation gain on capital raising shares passes (indirectly) to owners. The realized gains on any owners shares sold to cover those taxes would also pass (directly) to owners, as usual.
That would bring corporate capital raises into exact tax parity with normal owner stock sales.
The only difference is practical: The cash from an indirect sale (capital raise), goes to the owners indirectly (into the company), and is taxed indirectly (pass through). The cash from a direct sale (same sale percentage, but by each owner independently), goes directly to the owners, and taxes are assigned directly.
Either way, taxes are now identical.
(A third case, where all owners sell the same percentage of stock, and agree to all inject the funds into the company, might be a circuitous way to operate, but again, taxes are identical. Taxes on realized gains become sale path and cash purpose neutral.)
Getting taxed on any increases in value early would feel very unfair. I have already put in so much value, for nothing in liquid/credible valuation yet, that things would have to go very well to compare equitably with what could sensibly have been expected if I had accrued half-time earnings, continuously saving and investing that income in its entirety, for over three decades.
Further worries: If I don't want to accept any venture capital, and at least for the foreseeable future bootstrap, would I somehow be forced into needing to liquidate ownership based on some accrued wealth rule anyway?
Hopefully not.
But if capital raises are the trigger for accrued wealth taxes, even a small raise after bootstrapped success gets ugly. Imagine raising capital after achieving bootstrapped success, by selling 1%, only to have to pay taxes on 99% of the company's new valuation! That would create a severe disincentive to take any capital ever, after bootstrapped success.
My suggestion: Only tax valuation gains on the sold shares. The realized valuation gain on capital raising shares passes (indirectly) to owners. The realized gains on any owners shares sold to cover those taxes would also pass (directly) to owners, as usual.
That would bring corporate capital raises into exact tax parity with normal owner stock sales.
The only difference is practical: The cash from an indirect sale (capital raise), goes to the owners indirectly (into the company), and is taxed indirectly (pass through). The cash from a direct sale (same sale percentage, but by each owner independently), goes directly to the owners, and taxes are assigned directly.
Either way, taxes are now identical.
(A third case, where all owners sell the same percentage of stock, and agree to all inject the funds into the company, might be a circuitous way to operate, but again, taxes are identical. Taxes on realized gains become sale path and cash purpose neutral.)