San Francisco Startup CPA – Some Tax Tips for Bay Area Startups

Filed in CPA Blog by on October 23, 2013
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San Francisco is a hotbed of startup activity. Besides companies like Twitter, which of course is planning its IPO, San Francisco and the San Francisco Bay Area in general has become a hotbed of startup activity, especially in technology. In this blog post, we explore some common problems and tips for startups seeking tax services and startup advice.

What is a Startup?

Tax Tips for Bay Area StartupsFirst of all, what constitutes a startup business? Practically anything. A startup might be in technology following the “traditional” model of a group of people who have the next brilliant social media idea (such as an iPhone APP, a Facebook App, or an add-on to Twitter). They might even have venture capital funding, or they might be in what is sometimes jokingly referred to as the FFF stage of funding: friends, family, and fools. Or, a startup look more like a traditional business: it might be a San Francisco sole proprietorship in any industry (for example, restaurants or professional services) that is ready to make the transition to a more established business as a corporation or LLC. It really depends. A startup is as much a state of mind as it is a business organization.

Startup Organizational Issues

Whenever you start a business, whenever you are acting like a business, you have accounting and bookkeeping responsibilities and you get some nice benefits. For example, you often lose money at the beginning of the process… And with the right tax strategy you can use these business losses against other income. So even at the very beginning it is helpful to consult with a tax advisor to be able to use your legitimate business expenses (even losses) in terms of tax minimization.

Another related issue is how to organize the startup. Should it be a sole proprietorship? A corporation, and if so what type C, S, etc.? Should it be an LLC or a partnership? Your legal team can help on those issues, and a tax service / CPA firm like Safe Harbor LLP can help with the possible tax implications of your business organizations.  We help many Bay Area businesses with business organizational and tax issues, working in conjunction with attorneys specializing in startups.

Employee / ownership issues also come to the fore. Who is an owner? Who is an employee? How is everyone being compensated? There are many ways to organize compensation and we can help you choose the best ways to compensate people now and in the future (when your startup is possibly very successful.

Startup Record Keeping

No one really likes to keep records, but keeping accurate financial records is very important. If your startup is very small, it might just be simple bookkeeping. If your startup is very big (e.g., Twitter-size) then your accounting requirements are much better. If your path to revenue includes an IPO or a buy out, then you’ll need really professional record keeping and accounting / audit services.  Better to plan this sooner rather than later!

The great thing about the San Francisco Bay Area is that everyone tends to be very tech savvy.  We can share many technology tips on how to make record-keeping easy.

Startup and Stock Options for San Francisco Businesses

Many startups, especially here in the San Francisco Bay Area, compensate employees via stock options. Stock options are in a practical sense often the way that startups compensate employees: a promise (a hope?) of future value when you go public or get acquired. There are many, many tax and accounting issues regarding the granting of stock options, so it is best to consult with both your legal team and your accounting team to investigate how to grant employee stock options.

In sum, the Bay Area is a hotbed of startup activity. We see many inquiries to Safe Harbor LLP as a Bay Area startup tax and accounting expert firm, which is one reason why it is so exciting to call the Bay Area, “home.” If you have questions on your startup tax or accounting needs, please reach out to us at 415-742-4249 or via our email inquiry form.

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