Questions founders ask us

We use the Advanced Encryption Standard (AES) algorithm with a key size of 256 bits and with a unique and proper encryption key rotation policy for each customer.

Typically 10 to 20 percent, sized against the hiring plan rather than a rule of thumb. Work out what the next 18 months of grants will need and reserve that.

Investors often require the pool to be topped up before a round, which dilutes existing holders rather than the incoming investor.

Yes, and they are strict. Other corporations, partnerships, and non-resident aliens generally cannot hold S-Corp stock, and the total is capped at 100 shareholders with one class of stock.

The non-resident restriction rules out most cross-border founding teams. Our C-Corp and S-Corp comparison covers the eligibility rules.

There is no penalty for the extension itself. The consequence is that the extension is not granted, so the underlying return becomes late and its own penalties start accruing.

That is why the extension has to be in on or before the original due date. More on Form 7004.

Dissolution is the formal filing that legally ends your company's existence. It's different from just stopping operations — until you file, the state and the IRS still consider the company active.

An annual fee every Delaware corporation owes to keep its entity in good standing. It is not a tax on income, so it is owed whether or not the company trades or makes a profit.

Corporations file an annual report with it, by 1 March. Miss it and the state can void the charter, which blocks financings until it is reinstated.

The board adopts a resolution to dissolve, the shareholders vote to approve it, and you pay off any outstanding franchise tax before filing a Certificate of Dissolution with the state. Miss the franchise tax step and the state won't accept the filing.

Four instalments across the year, in April, June, September, and January of the following year. The periods they cover are not equal quarters, which catches people out.

Missing one and catching up later does not undo the underpayment for that period. Our Form 1040 guide covers the schedule.

Not legally, but practically yes. Mixing business receipts into a personal or foreign account undermines the liability separation and makes bookkeeping far harder.

Most banks want an EIN, formation documents, and some form of identification before opening one.

Usually yes, if you want to employ people directly. Payroll, statutory benefits, and local filings all run through a local entity.

The alternative is an employer of record, which employs the person on your behalf without you forming anything. It costs more per head but avoids the setup and ongoing compliance of a subsidiary.

Check your EIN confirmation letter (CP 575) first. If that is gone, look at a previously filed tax return, a business bank account application, or any 1099 you have issued. Your bank or your payroll provider will also have it on file.

If none of those work, call the IRS Business and Specialty Tax Line and ask for the number to be read back to you. You have to be an authorized person on the account. We walk through every method in how to search for your EIN.

The BE-12 is the Bureau of Economic Analysis benchmark survey of foreign direct investment in the US, conducted every five years. It is a statistical filing, not a tax one.

A US company with significant foreign ownership is in scope whether or not the BEA contacts it. More on foreign investment reporting.

Monthly. Reconcile every account, post accruals, review balances, then lock the period so nobody edits it afterwards.

Closing annually means you learn about problems eleven months late, and accrual accounting does not really work without the monthly discipline.

Not usually. Bookkeepers maintain the ledger; filing a return is work for a tax preparer with a PTIN, and representation before the IRS requires further credentials.

Many providers offer both, which is why the line blurs. Ask who signs the return and what their credential is.

Access to bank and card feeds, invoices issued and bills received, payroll reports, loan and investment documents, and the prior year's closed books or tax return.

The last one matters most at the start, since opening balances have to come from somewhere.

Costs incurred in developing or improving a product, process, or software: engineering salaries, contract research, and supplies consumed in development.

They matter twice over, for Section 174 treatment and for the R&D tax credit, and the definitions for the two are not identical.

Not legally, but the records behind your tax return are. Someone has to reconcile accounts, categorise spend, and close the books, whether that is you, an employee, or a provider.

The question is really what your time is worth. Our bookkeeping guide covers what the work involves.

Required if US corporation did any reportable transactions at any time during tax year AND has any 25%+ foreign shareholder. See here https://www.irs.gov/instructions/i5472

It is simple to form and cheap to run, which is why many foreign owners start there. The catch is the reporting: a foreign-owned single-member LLC must file Form 5472 with a pro forma 1120, and the penalty for missing it starts at 25,000 dollars.

If you plan to raise US venture money, a C-Corp is the structure investors expect.

Generally yes. A partnership that exists during the year files, even with no income and no expenses.

The penalty for not filing is charged per partner per month, which makes a dormant partnership an expensive thing to forget. More on partnership returns.

No. The election exists to accelerate taxation on shares subject to a substantial risk of forfeiture. Fully vested shares with no repurchase right have nothing to accelerate.

If your shares carry any vesting or company repurchase right, file. The cost of filing unnecessarily is nothing; the cost of not filing when needed is large.

Form 1120 is filed by C-Corps, which pay tax at the entity level. Form 1120-S is filed by S-Corps, which pass income through to shareholders on K-1s.

Which one you file follows your tax election rather than your legal entity type. A corporation that never elected S status files the standard 1120.

Annual bookkeeping means no visibility into your numbers for eleven months and a rush at the deadline.

Accrual accounting also needs monthly work. Arriving days before a deadline with a year of transactions usually forces a cash-basis return, which is not what investors want to see. We compare the two.

It depends on where the work is performed. Services performed entirely outside the US are generally foreign-source and not subject to US withholding.

US-source payments generally are, at the statutory rate unless a treaty reduces it. Either way you need a valid W-8 on file to support your position.