The financial decisions you make in your startup’s first year echo for years. Getting the structure and tax setup right early is far cheaper than fixing it after you’ve raised capital or generated revenue.
Choosing your entity
Most venture-track startups incorporate as a C-Corporation (often a Delaware C-Corp) because investors expect it and it supports stock options and preferred shares. Bootstrapped startups that don’t plan to raise may be better served by an LLC or an S-Corp election. The right answer depends on your funding plans, ownership, and growth strategy.
Founder equity and 83(b)
If you receive restricted stock, filing an 83(b) election within 30 days can save you significant tax later by locking in the (low) value at grant. Miss the window and it’s gone, this is one of the most common and costly founder mistakes.
The R&D tax credit
Many early-stage startups qualify for the R&D tax credit, even pre-revenue, and qualified small businesses can apply up to a set amount against payroll taxes. If you’re building a product or developing technology, you may be leaving real money on the table.
Startup deductions
- Startup and organizational costs, a portion is deductible in your first year, with the rest amortized.
- Qualified Small Business Stock (QSBS), C-Corp shares held long enough may qualify for a major capital gains exclusion at exit.
- Equipment and software, Section 179 and bonus depreciation can accelerate deductions.
Stay investor-ready
Clean books and clear metrics aren’t just good hygiene, they make due diligence painless when you raise. Set up proper accounting from the start rather than reconstructing it under deadline pressure.
Building something new? Our startup advisory helps founders set up right. Book a consultation to get started.
Document founder funding from the beginning
Keep a record of who provided each amount, when it arrived, and the agreement describing it. Separate money contributed by owners from customer revenue and amounts intended as loans. Save the legal documents and payment evidence together. Questions about ownership, repayment, and tax treatment are easier to address while everyone remembers the transaction than during a financing round months later.
General educational information, not an individual tax opinion. The applicable year, jurisdiction, and facts must be reviewed before acting.