Tax Essentials for Startups: Build Smart from Day One

Chosen theme: Tax Essentials for Startups. Launch with clarity, grow with confidence, and avoid costly surprises by understanding the tax moves that matter most from your first dollar to your first due diligence.

Choosing Your Entity and Tax Posture

C-Corps often suit venture-backed paths and equity plans, while LLCs offer flexibility and pass-through taxation. S-Corps can reduce self-employment tax but carry ownership and class restrictions. Align structure with fundraising ambitions, future employees, and expected profits.

Choosing Your Entity and Tax Posture

Pass-through entities avoid entity-level tax but shift the burden to owners’ returns, sometimes complicating investor relations. C-Corps face double taxation, yet can unlock stock-based incentives and potential Section 1202 benefits. Model scenarios before you ink incorporation documents.

Cash vs. Accrual: Why Subscription Startups Usually Choose Accrual

Cash accounting feels easy, but accrual matches revenue to service periods, revealing true margins for SaaS and subscriptions. Investors expect deferred revenue tracked correctly. Decide early, document the policy, and keep it consistent across months and ledgers.

Receipts, Chart of Accounts, and File Hygiene

Adopt a clean chart of accounts that mirrors your business model—cost of goods, R&D, marketing, and hosting separated. Store receipts with searchable filenames and vendor tags. Future you will thank present you when diligence asks for granular backup.

Monthly Close Rituals That Keep Surprises Small

Reconcile bank and credit cards, review aged payables, chase missing receipts, and annotate unusual entries. A predictable close process turns tax season into a simple export, not a fire drill. Want our checklist? Comment with “close kit” to get it.

Payroll, Contractors, and Classification

Misclassifying employees as contractors can trigger back taxes, penalties, and messy cleanup. Control, tools, and schedule often signal employment. Document scope and independence for contractors, and revisit roles as responsibilities evolve beyond the original agreement.

Payroll, Contractors, and Classification

Automate with a reputable payroll provider that handles withholdings, Form 941, state unemployment, and year-end W-2s. Keep onboarding checklists for I-9s and state registrations. A calm payroll cadence keeps founders focused on customers, not calendars and penalties.

Deductible Costs, Capitalization, and Credits

Qualifying startup and organizational costs may allow a limited immediate deduction, with the remainder amortized over time. Track legal, filing, and market research separately from ongoing operations. Clear categorization helps your tax preparer maximize allowable deductions without delay.

Deductible Costs, Capitalization, and Credits

Research expenditures often require capitalization and amortization, but the R&D credit can offset tax or payroll taxes for eligible startups. Maintain contemporaneous documentation—hypotheses, experiments, and technical uncertainty—to support Form 6765 and withstand probing diligence questions.

83(b) Elections: The 30-Day Window You Cannot Miss

If founders receive restricted stock, filing an 83(b) election within 30 days may fix tax at grant value. One team mailed it on day 29 and still made it—barely. Put the reminder in three calendars and confirm delivery.

QSBS (Section 1202): A Potentially Massive Exit Benefit

Qualified Small Business Stock can offer significant exclusion at exit if requirements are met. Track original issuance, holding periods, active business tests, and gross asset thresholds. Capture documentation now so future you can claim benefits without forensic reconstruction.

SAFEs vs. Notes: Tax Nuances to Watch

SAFEs generally postpone valuation events, while convertible notes can introduce interest or OID considerations. Document terms, cap tables, and conversion triggers clearly. Ask investors what reports they expect, and subscribe to get our cap table templates and walkthrough.