Profile picture
Patrick McKenzie @patio11
, 37 tweets, 7 min read Read on Twitter
Atlas just released my favorite feature yet: tools to help companies incorporated with us navigate tax season. stripe.com/blog/atlas-tax…

Unsurprisingly for someone who filed five tax returns last year in two countries, I was very enthusiastic about getting this done. Thoughts:
I'll never forget my two thoughts when I sold my first copy of software over the Internet: "This is amazing. I hope I don't go to jail."

That's the power that taxes holds over budding entrepreneurs.
Taxes are treated as something like the affairs of obscure and malevolent wizards. There exists a tome of rules. You're forbidden from knowing it. Mispeaking the magic words may turn you into a newt.

This is nonsense.
The IRS is, as a result of reforms dating back decades, among the most user-friendly institutions in the federal government. They publish all the rules online, at a 5th grade reading level. Millions of people successfully file every year without incident.
But the knowledge gap, and the comfort gap, persists.

The standard advice is "Talk to an accountant", which founders hear as "Don't bother me; I have no answers."

That advice isn't operationalizable. It's like telling a flower shop "Printer problems? Find an engineer."
(Yep, accountants specialize, just like engineers do. There are, in fact, accountants who would be unable to give anything but cursory advice to a small business trying to sell software over the Internet. Nobody asks me to debug airplane engines, after all.)
Even though taxes aren't wizardry, for better or worse, I'm legally not permitted to engage in the practice of non-wizardry. (I seriously considered getting a CPA last year so I would not have to say "This is not accounting advice" so much when writing for Atlas.)
But I can give you some opinionated advice as someone who ran (small, multinational) Internet companies for a decade.
90% of the total effort of taxes is systems design. You want to architect your business such that recordkeeping has a "pit of success", where it is easy and automatic to do the right thing.
If you have good records, your accountants will have less opportunities for mistakes, more options for helping you, and more cycles to spend on helping you manage your business' financial health.
You should prefer to spend scarce founder brainsweat on growing your business rather than either tax administration or optimization. Tax administration is simply table stakes for running a business; optimization is almost never going to be your competitive advantage.
Virtually no entreprenur really loves the experience of paying taxes. At small scales of a business, the best way to ensure that you're paying only what you owe is to make sure you capture all business expenses in your books.
One year the assistant who I had doing my books for me dropped one page of credit card statements on the floor while doing data entry. It had ~$14,000 of expenses on it (a business trip).

If they hadn't been calculated in our P&L, that would have cost us $5,000.
"How would you not notice your profit figure being off by $14,000?"

That is *very easy* to do if you do not have your systems and processes set up to effortlessly keep accurate records. Your business will *very quickly* outrun your working memory.
You've probably kept up a household before. This is harder.

Speaking of which: separate your household expenses from your business expenses.
In the beginning, like many entrepreneurs, I was using my own checking account, Paypal account, and credit card for the business. This is very suboptimal.
Credit cards are available like candy. Get a new one; religiously use it for anything business-related.

This helps you default to success: the credit card statement is a record of most business expenses and no non-business expenses; no expenses sneak onto your personal card.
If you inadvertently use it for something you shouldn't have, your accountant or bookkeeper can correct that for you.

This discipline will prevent you from having to walk through literally every transaction you made last year trying to find the ones that were business related.
In general, my peers and I are relatively conservative with regards to having the business pay for things. This is a great thing to discuss with your accountant; they can help you calibrate a division appropriate for your jurisdiction, industry, and comfort level.
Revenue is so much easier to track for Internet businesses than expenses are, principally because you're probably using a payments processor which keeps really good records as a matter of course.
In Japan we have to produce a record of revenue per month, which (back in the day) I had to write Ruby scripts to get out of my Stripe account.

Pro-tip: sometime between then and now Stripe added a monthly report; you can find it in Business -> Data at dashboard.stripe.com/account/data
(You can *also* use Sigma to write SQL directly against your Stripe account. Which is probably overkill for most small Internet businesses but it's a really gloriously fun kind of overkill.

Yeah, nothing like tax season to make me think that SQL is a fun diversion.)
Anyhow, back to taxes.

You can, and should, have conversations with your accountant well in advance of tax season (which is approximately January through April). They've got lots of free time the rest of the year, and you have some planning to do.
I generally talked to my accountants roughly quarterly when running a business, and before major moves like e.g. preparing to sell it.

This is partly to let them give you early warning of things like "So Patrick you do realize that Japan is your 60% equity cofuonder right?"
(I, uh, did not, but I'm really glad I found that out prior to spending 60% of the proceeds of the sale on e.g. a downpayment on a house.)
Another reason is to get the help of a money-savvy professional who is outside the day-to-day of the business, to sanity check things for you.

My accountants consistently picked up on e.g. impending cashflow issues or general health-of-business things when my head was in weeds.
There's a complicated decision tree of how long to keep financial records, but explaining it would be accounting advice.

"You should have a Dropbox account" is probably not accounting advice.

I have never, ever, ever said "Man I am glad I threw away that business record."
For really boring reasons, I had to show the State of Missouri (n.b. last set foot in it in 2004) a piece of paper issued in 2004... in 2016.

Which I was trivially able to do because hard disk space is cheap and Dropbox / Tarsnap work very, very well.
A surprisingly useful thing that I've done is wrote a one-pager "What happened this year" for each line of business, for consumption by the accountants. (In my case, heavily sourced from my public end of year review blog posts.)

These get more valuable each passing year.
"What should I do if I get audited?"

You email your accountant and say "Hey a low-probability routine event has happened. What should I do about this?"
I was audited by the State of Hawaii one year, because one of my companies had registered to file a bid with one of their agencies, and then they didn't get a business privilege tax return from us the next year.

Responding to the audit took 45 minutes.
General flavor of the interaction:

"How much revenue did you have in Hawaii last year?"

*SQL query* $180.

"Wait, what. OK, you're done."
In general, exuding professionalism will make many, many interactions with government (and other bureaucracies) go better for you. You want to be polite, compliant, and armed-to-the-teeth with well-organized records.

And, again, this is why you pay your professional advisors.
Accountants generate immediate ROI at any scale of business larger than a bake sale.

My Japanese accountants, for example, caught that I had filed an exemption from consumption tax because all of my sales were exports of software. That was not an optimal filing.
The optimal filing was to file a consumption tax return, saying that we had $0 of sales subject to consumption tax.

And then claim back all the consumption tax our business had paid (on business expenses).

Resulting in a tax refund of several times what I paid accountants.
"Wait you can get radically different results from the same facts with just tiny changes in what you type on your return?"

You sound very surprised, hypothetical person who probably has programmed before.
If you read this far, you might want to check out our guide to business taxes: stripe.com/atlas/guides/b…

If you're an Atlas company, we've got a quick survival guide for tax season here: stripe.com/atlas/guides/t…
Missing some Tweet in this thread?
You can try to force a refresh.

Like this thread? Get email updates or save it to PDF!

Subscribe to Patrick McKenzie
Profile picture

Get real-time email alerts when new unrolls are available from this author!

This content may be removed anytime!

Twitter may remove this content at anytime, convert it as a PDF, save and print for later use!

Try unrolling a thread yourself!

how to unroll video

1) Follow Thread Reader App on Twitter so you can easily mention us!

2) Go to a Twitter thread (series of Tweets by the same owner) and mention us with a keyword "unroll" @threadreaderapp unroll

You can practice here first or read more on our help page!

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just three indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member and get exclusive features!

Premium member ($3.00/month or $30.00/year)

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!