Here’s an accounting question for you.

Say that you’re a graffiti artist and your customers pay you to go crazy and express yourself on their walls (one of the few jobs that’s more enjoyable than doing taxes!).

- In March, you billed your customers $50,000 for your services. They paid you $15,000 in March, and the remaining $35,000 in April.

- You picked up $20,000 worth of spray paint in March and got to work, paying $12,000 up front, and the remaining $8,000 in April.

When do you record these expenses in your books?

The answer is: it depends. Welcome to the parallel universes of accruals accounting and cash accounting. These two methods have subtle but critical differences, as well as their pros and cons.

Raising money through VCs and angel investors often means dealing with complex legal documents, such as convertible loans (also called bridge notes) and preferred stock purchase agreements. While there is a movement to simplify these financing options, they still come with a set of relatively complex legal documentation. In contrast, a loan agreement — which is really just an IOU — is far simpler.

That’s not to say that raising money through loan agreements is easier. VCs and angel investors are investing for the big upside, not for returns on an interest rate, so it’s unlikely that you’ll find those kinds of investors who are willing to do a loan instead. However, your Uncle Bob or your best friend Smitty, who just want to help you get started or to expand, might be open to doing a loan.

Here’s why a loan is simpler than other forms of raising money…

Many new businesses are formed with the idea that the founders can deduct the cost of everything that they buy to run the business. This is not the case. There is a tax concept called “depreciation” that says if you buy something that could be a deduction, but it lasts a really long time, the tax code will usually not allow you to deduct the full cost of the item in the year you buy it. You have some options for how to handle depreciation, which come with different sets of tax pros and cons. Here are the basics.

Welcoming a new shareholder to the company is a lot like getting married. You’re not only getting a new partner; you’re also inheriting your partner’s family. And as any married person can tell you, in-laws are always a sticky subject. You’d like to assume the people that brought your beloved into this life will also get along with you, but that’s just not always the case.

The same holds true in the context of your company. You’ve vetted your investor — now shareholder or member — and crafted an agreement specifying the shareholder’s rights, which protects your company in case the shareholder dies or tries to sell his or her shares. You also know your new shareholder is married and you’ve heard about the spouse, who you assume is great based on how much you like the shareholder. However, you’ve never actually met the spouse and you definitely are not sure you’d like the spouse to be a shareholder.

The last time I had a health check, I, for once, had a proper read of the results. HDL levels? Platelet Count? None of the terminology made any sense. For all I knew, the report could have been an advanced application for a death certificate and I still wouldn’t have had a clue.

Sadly, the report card you get from your company’s financial health check is probably just as incomprehensible. So let’s try and decipher some of the accounting-speak jargon that you’re likely to encounter.

…Since Larry is technically selling his IP to the company for $2,000 worth of stock, he should have to pay tax when he receives the stock. Congress saw this as a big problem because they knew many new businesses would form corporations and not want to have to pay taxes, so they created something to help: Section 351 of the Internal Revenue Code.

351 basically says that if 80% of the owners of the corporation contribute cash or property (as opposed to services) in exchange for their stock, then these people will not owe tax when they get their stock from the corporation. However, the basis that they had in the things they gave to the corporation will transfer over to the stock. This means that, even though Larry won’t have to pay tax when he gets the stock from the corporation, he will have to pay tax when he sells the stock…

As an employee at a startup, it is common to receive stock options as part of your compensation package. An option is the right to buy shares in a company at a set price after a certain date. Options are all about timing. Here are four dates you’ll want to keep in mind to understand how your options translate into value over time.

Wouldn’t it be nice if you could have a good time, and get a personal income tax deduction for your efforts? If you’re a sole proprietor, the sole member of a single-member LLC or the sole member of an S corporation, we may have news for you!

If you entertain a client, customer or an employee for a business-related reason, you would be able to utilize 50% of the expense as a deduction on your individual income tax return. You’ll need to keep all the invoices, or at least a detailed record of when, where, why, who with and how much you spent for entertaining clients. Just fill out the box on Line 24b of Form 1040, Schedule C.

Easy as that? It would be uncharacteristic of the tax code if it were. Let’s talk about the details…

You are probably familiar with a tax concept called basis, even if you don’t know it by that name. It is a relatively simple concept that is extremely important for keeping track of your company’s taxes.

Say you buy a house for $200,000 and sell the house three years later for $300,000. When you make the sale, the IRS taxes you on the $100,000 appreciation in the house’s value as opposed to the total sale amount of $300,000. From the IRS’s perspective, you have already been taxed on the $200,000 that was used to buy the house.

The $200,000 is your basis in the house. Basis is a tax concept that helps ensure fair taxation on income. In this example, basis refers to how much you paid for the house — this is also sometimes referred to as cost basis.

When it comes to option pools, founders and investors care about how the pool affects the company’s valuation, what the company looks like fully diluted, and what happens to the options in an acquisition. There are a lot of great posts out there regarding what founders and investors should be aware of regarding option pools.

As an employee with stock options, you don’t need an in-depth understanding of all the issues surrounding option pools. In fact, all you really need to know is how much of the company you’re going to own. However, understanding a little bit about option pools will give you some useful insight to where the company is going and your future prospects.

Everybody knows April 15th is tax day. Most people fear it and spend lots of hours worrying about it. It’s fair to say that only tax preparers and the IRS look forward to the day, leaving the general public to sweat it out weeks beforehand.

The truth is, April 15th is not the only “tax day” to be aware of when you run your own business. The IRS has many deadlines throughout the year for businesses to consider.

For example, if a C Corporation expects to make a certain amount of money over the course of the year, it will owe estimated taxes for that year in quarterly installments. In 2009, any C Corp expecting to owe at least $500 in taxes for the year was required to file estimated taxes for each quarter. Individuals can owe quarterly estimated taxes as well; these are usually withheld from the paychecks of salaried employees. If you are self-employed, however, you may owe an individual quarterly estimated tax return in addition to your corporation’s. LLCs and S Corps don’t file estimated tax — their profits flow through to the shareholders, who pay estimated tax for individuals.

Many companies issue their employees equity, or stock, as part of an overall compensation package. Two of the most popular forms of equity granted to employees are stock options (the right to purchase the stock at a set price) and restricted stock units, or RSUs (stock that is owned by the employee outright after working with the company for a set amount of time). While there are many considerations when choosing between options and RSUs, one of the most important things to keep in mind is how, and when, each is taxed.

Unlike most states, New York offers free registered agent services provided by the Secretary of State. Private RAs are left to convince businesses that their services are superior to the Secretary of State’s.

The primary difference between the Secretary of State and a good private RA is speed. The Secretary of State’s office notifies you of service of process by mail. A private RA may offer more immediate notification methods, such as by phone or email. Other services may include electronic record keeping and customer support.

Banks are not always easy to deal with, but at least they’re predictable. I’ve set up small business bank accounts in +5 countries and although requirements differ, there are certain fundamental rules of thumb I try to follow each time.

1. Don’t Be a Stranger

If you already have a personal account with the bank, the set-up process will be much smoother and quicker. Their system knows you and that goes a long way for the banks. In addition, if it is your existing bank, you will be familiar with how they work (or do not work) and know how to navigate their internal bureaucracy and online banking systems. Banks have lots of packages and offerings for small businesses, but at the end of the day they are very similar. If any of the rules of thumb below hugely favor another bank, then switch.

Your company hires a registered agent to be the bearer of bad news. It’s strange, but true. Mail from your RA can only mean a few things, none of which you’re looking forward to. The mail could be an annual report notice, which means paperwork. Or it could be tax forms. In rare cases, it could be notice that you’re getting sued.

There is good news. Your RA is actually a friend. When you get mail from your RA you know it’s something that deserves immediate attention. Your RA won’t be sending you any junk mail. Imagine missing a tax filing, or even worse, failing to respond to a lawsuit. Those mistakes have real financial teeth. An agent dedicated to making sure you get notice of those types of things can only be a good thing.

When setting up a new company it can be surprisingly difficult to get an overview of what fees you will be paying, who you will be paying them to and when you will be paying them.

Even though the fee system in the U.S. varies between service providers and states, there are many similarities between them. Fees can generally be classified in two categories: (i) set-up fees and (ii) maintenance fees. Set-up fees are one-off fees which you incur when setting up your company and maintenance fees are fees which you will be paying each year.

Tiger Woods’ website prominently features his handwritten signature. He also “signs” each of his blog posts with the same signature image. This signature can easily be copied, reused, and misused. I can “sign” this post just like he does.

I can also take this image and print it out on a contract. Perhaps I may need to do some photoshop tricks to make it look more authentic, but bottom line is that a handwritten signature or its image isn’t very secure.