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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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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…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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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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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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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.

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Cory logs onto Etsy and purchases a pair of artisan-made cufflinks for $80. Shipping to his house in San Francisco costs an additional $3.50 USD. Though Etsy is a Brooklyn-based company, the seller, Oak, is located in Boston. What sales and use taxes do Cory, Etsy and Oak owe?

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Mary, an American woman visiting London sees a pair of Giuseppe Zanotti boots in a Kensington shop. Rather than buy them on the spot, she logs onto Zappos.com from her hotel and buys the same pair in a size 7 Nero for $995.00. She pays for them by credit card and has them shipped to her home in New York City. What corporate tax will Zappos.com have to pay?

This is a common problem that many internet retailers have faced. The reality of the situation is that not all tax authorities agree on the answer. The good news, however, is that certain rules do apply as to who can tax a transaction under older rules that applies to buying goods by mail order or other service in different locations.

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We are building software to make all manner of business administration easier – particularly for people who have never done it before.

To do this, we study volumes of legal material, model scores of existing companies and hunt down business anomalies wherever we can find them. We then distill the rules and best practices across hundreds of jurisdictions and industries into simple building blocks.

In our research we come across many topics and issues that could use better explanation and examples. The web has plenty of sources for the definitions of concepts like S-Corp and option pools but they are usually painful for the novice or useless for the expert.

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