When you start a company with co-founders, you might want to split up ownership in the company differently to reflect different levels of involvement. You might also want to contribute equal amounts of cash to the company to show your shared commitment. This doesn’t raise any eyebrows in the startup world, and in fact happens quite frequently. Giving out different amounts of equity for the same amount of cash might, however, raise a red flag with the IRS. Here’s why.

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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.

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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…

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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.

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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.

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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.

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…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…

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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.

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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…

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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.

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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.

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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.

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