Who this is for
- Venture-backed Delaware C corporations that have just raised or incorporated
- Founders who still keep the books and are deciding when to hand them off
Not covered here
- Journal entries for SAFEs, notes and preferred stock
- Accounting software choice, chart of accounts and monthly board packages
- Founder salary amounts and stock option valuation
- S corporations, LLCs and partnerships
What bookkeeping does a venture-backed startup need from day one?
A venture-backed startup needs three things from the first day: a bank account that belongs only to the company, every transaction recorded in the books, and the bank statement reconciled with those books every month. The IRS advises a new business to open a separate business checking account and reconcile it monthly, and the regulation requires books that establish gross income, deductions and credits (Publication 583; 26 CFR 1.6001-1).
- Company accounts only. Raise money, revenue and company spending go through accounts in the company's name. Publication 583 suggests identifying the source of each deposit as business income, personal funds or a loan.
- Double-entry books. The IRS lets a business choose either system. A single-entry system tracks income and expenses only. A double-entry system records each transaction in two accounts, so the books balance, and keeps asset, liability and equity accounts, which a company with investor money, stock and loans needs for its balance sheet.
- A monthly reconciliation, with documents. The balances on the bank and card statements agree with the books before the month closes, with each difference explained, and invoices, receipts and payroll reports support each entry.
The books stop being simple at the first raise: investor money, founders' own-money costs, payroll, contractors and stock each need their own records, taken in turn below. Outsourcing is worth weighing at the first raise, hire, contractor or investor update (see the section on when to outsource). If the round has closed, payroll or contractor payments have started, and an investor update is due while the founders still keep the books, a professional's help is worth weighing now; see startup accounting and tax help. For books already months behind, see cleaning up your books before fundraising; for the setup, startup accounting software before funding.
Gather: the cap table, formation and stock documents, bank and card statements, payroll reports, the contractor list and the investor agreements.
What has to be in order before and after the first raise closes?
Investor money should land in the company's own account, and a repayment to a founder is easiest to support when it matches a receipt. Both keep the books tied to the bank and the cap table.
- Before closing: open the company account, move any company spending off personal cards, and list what each founder paid personally with the receipt.
- At closing: the wire goes to the company account. Each instrument, whether a SAFE, a note or priced preferred stock, gets its own entry that ties to the cap table; see recording a priced round.
- After closing: match each repayment to a founder to receipts, not an unexplained transfer.
A repayment to a founder who is an employee can be treated as wages if the costs are not substantiated in time. Publication 15's accountable-plan tests cover expenses an employee pays while performing services as an employee, so costs paid before the corporation existed, and money a founder lent the company, fall outside them; bring the dates, receipts and any loan papers to a CPA before repaying those (IRS Publication 15). The tests, the time limits and the entries are in a C corporation paying owner expenses.
How do founders' pay, payroll and contractors go into the books?
A corporate officer who works in the business is an employee of the corporation, so pay for that work generally runs through payroll. The income tax and the employee's share of Social Security and Medicare tax withheld from wages belong to the government: an officer or other person responsible for paying them over who willfully does not can owe 100% of the unpaid amount personally, generally assessed within 3 years of the later of the return's filing or April 15 of the next year (IRS Publication 15; IRS Internal Revenue Manual 5.19.14). A contractor who is a US person, a US citizen wherever the citizen works included, gives a Form W-9 before the first payment and is reported on Form 1099-NEC once payments reach the threshold.
| Worker | Paperwork | What the books keep |
|---|---|---|
| Founder or other employee | Payroll on each pay date; Form 941 each quarter; Form 940 each year for most employers; Form W-2 each year | Gross wages, withholding and employer tax for each run, tied to the payroll report and the bank payment |
| Contractor | Form W-9 from a US person before the first payment; the appropriate Form W-8 or Form 8233 from a foreign person; Form 1099-NEC if the year's payments reach the threshold | A vendor record with the tax form, the year's total and the payment method of each payment |
How much to pay, and whether a founder can take no pay, is covered in founder salary in a venture-backed corporation, and the first-payroll steps in setting up payroll.
A payer files Form 1099-NEC for each non-employee paid $2,000 or more during the year for services in the course of its business (IRS instructions). Payments to a corporation are generally not reported, with exceptions such as legal fees, and payments made by credit card or through a third-party payment network are reported by the payment processor on Form 1099-K instead. The form is due January 31, or the next business day when that falls on a weekend or holiday. Form W-9 is how a payer requests a US person's taxpayer identification number. If a contractor does not give one, backup withholding at 24% may apply, the payer that fails to withhold as required may become liable for the uncollected amount, and Form 1099-NEC is then required at any amount. A foreign person gives the appropriate Form W-8 or Form 8233, and a payment to one can carry withholding and different reporting, so settle the form and the withholding with a professional before the first payment (W-9 instructions; General Instructions). More in which contractors get a tax form.
Whether a worker is a contractor depends on the facts, not the label, and investors may flag early team members paid as contractors who work like employees; see contractors found misclassified in due diligence.
Which tax records depend on the books: 83(b) elections, stock options and the research credit?
Three items start in the startup's records and surface later on a return or an employer filing:
| Item | Rule | What the company keeps |
|---|---|---|
| Section 83(b) election on founder stock that vests | The founder files with the IRS within 30 days after the shares are transferred, not after vesting, and gives a copy to the company (26 CFR 1.83-2) | A copy of each election, the stock purchase agreement and the price paid |
| Incentive stock option exercise | The corporation files Form 3921 with the IRS for each share transfer on an exercise (IRS instructions) and furnishes the employee a statement by February 1, 2027 for the current tax year and files with the IRS by March 1, 2027 on paper or March 31, 2027 electronically, which is required once the year's information returns total 10 or more (General Instructions) | An option ledger: grant, exercise date, exercise price and fair market value at exercise |
| Payroll tax election for the research credit | A qualified small business can use part of its research credit against employer payroll tax (below) | Wages and contractor research costs by project |
Filing steps, and whether a missed or mistaken 83(b) election can be fixed, are in founder shares that vest; option paperwork is in granting stock options after a valuation.
The research payroll election. A corporation is a qualified small business if its gross receipts are less than $5 million for the tax year and it had none in any tax year before the five-tax-year period ending with the current year. A qualified small business may elect on Form 6765, with its timely filed original return, to use up to $500,000 a year of its research credit against the employer's share of payroll tax, claimed on Form 941 with Form 8974 (Form 6765 instructions; Form 8974 instructions). The other limits, and whether the first return should make the election, are in the first corporate return for a pre-revenue startup.
The credit is a percentage of qualified research spending above a base amount, so it is much smaller than the spending, and it has nothing to offset until the company pays wages. Research counts only if it meets a four-part test applied to each business component, so the books should show wages and contract research by project (Form 6765 instructions). The R&D line is covered in the chart of accounts for a startup.
What does the Delaware corporation owe each year, so the books set it aside?
A Delaware corporation files an annual report for the prior year by March 1 and pays the franchise tax by March 1 at the latest, every year, whether or not it has revenue (Delaware Division of Corporations; Delaware Code, §§ 502 and 504). The tax follows authorized shares or assets, not income.
- Report fee: $50 for a non-exempt domestic corporation, filed online.
- Tax: the lesser of two calculations, the authorized shares method (minimum $175) and the assumed par value capital method (minimum $400), up to $200,000, with a higher maximum for a designated large corporate filer (Delaware Code, § 503; Division of Corporations).
- Installments and late charges: a corporation whose tax is estimated at $5,000 or more pays installments on June 1, September 1 and December 1 and the rest by March 1 (Delaware Code, § 504). A late report or payment adds a penalty and monthly interest, and a charter can become void after 1 year of unpaid tax or a missing report (Delaware Code, § 510).
On accrual books the March 1 bill is a liability at year-end; on any basis, set the cash aside through the year. A startup that authorized millions of shares can see a first notice far above the minimum; see Delaware franchise tax before paying it. The state where the team works can add its own filings; the whole yearly calendar is in Delaware C corp taxes for startups.
Does the corporation file a return with no revenue, and what must the books match?
Yes. A domestic corporation files Form 1120 whether or not it has taxable income (IRS Form 1120 instructions). A calendar-year corporation's return for the tax year is due April 15, 2027; Form 7004 adds six months to file but not to pay. A first return with no revenue is covered in the first corporate return for a pre-revenue startup.
The return draws on the books in three ways:
- Balance sheet. Schedule L should agree with the corporation's books. Whether it must complete Schedules L, M-1 and M-2 depends on its receipts and assets, which the first-return guide above explains.
- Accounting method. Taxable income is figured using the method regularly used in keeping the books.
- Formation and start-up costs. These are deducted only from the year the business begins, and incorporation alone does not set that date: a limited amount, which shrinks once the costs pass $50,000, and the rest over 180 months from that month. The deduction is deemed elected unless the corporation chooses to capitalize the costs on a timely return, so keep the costs and the date operations began in their own accounts (26 CFR 1.195-1; 26 CFR 1.248-1). Legal and professional fees for selling stock, such as the seed round, are not organizational costs; keep them separate and ask a CPA how they are treated.
What do investors expect each month, and should the books be cash or accrual?
Tax law generally lets a C corporation use the cash method only within a gross receipts limit, while the investors' documents, not the tax code, decide whether statements must be accrual. Check both before choosing.
Monthly reporting comes from the signed investor agreements, not the tax code. Read the information-rights terms for which statements are due and how soon after month-end. Investors or an auditor may call for accrual-basis statements; that too comes from the investment documents or the audit. Publication 583 names the two core statements: an income statement for a period and a balance sheet at a date (IRS). What goes in a board package is in monthly financials for investors and the board.
A C corporation can generally use the cash method for tax only if its average annual gross receipts are $32,000,000 or less, looking back three tax years or the years it has existed if fewer (26 U.S.C. 448(c); Revenue Procedure 2025-32). The return uses the method regularly used in keeping the books, and changing it generally needs IRS consent (Form 1120 instructions), so a startup that keeps accrual books for investors and wants a different method on its return should ask a CPA first. See cash or accrual for a small business and, for when revenue counts, revenue recognition for a startup.
What do the IRS, Delaware and investors each require?
The IRS does not require a startup to outsource its bookkeeping, use particular software or produce monthly statements; investor agreements may. Publication 583 says the law does not require any specific kind of records except in a few cases (IRS).
| Who asks | What they ask for |
|---|---|
| The IRS | Permanent books sufficient to establish gross income, deductions and credits, and the documents behind them (26 CFR 1.6001-1). Records are kept until the period of limitations for the return runs out, generally 3 years after the later of its due date or filing date; records on property are kept until it runs out for the year the property is sold, and a return never filed has no limit. Employment tax records are kept at least four years after the tax is due or paid, whichever is later (Publication 583). A Schedule L that agrees with the books. |
| Delaware | The annual report and franchise tax by March 1, with installments earlier in the year for a larger tax. |
| Investors | Whatever the signed agreements say: monthly statements, equity that ties to the cap table, and records in due diligence; see financial records investors ask for in due diligence. An audit is also a matter of the investor or lender agreement; see audited financials for investors. |
When should a startup outsource its bookkeeping or hire an accountant?
The IRS sets no date. An outsourced bookkeeping or accounting service becomes worth considering when an event adds entries and filings that the founders cannot keep current beside the product.
| Event | What it adds to the books |
|---|---|
| First raise | Investor money, equity entries tied to the cap table, founder reimbursements, diligence requests |
| First hire, founders included | Payroll runs, Form 941, Form W-2, possibly the research election |
| First contractor | Form W-9 on file, payments totaled by payee for Form 1099-NEC |
| First investor update | A monthly close, with statements by the date the agreements set |
The scope of the work follows the number of bank and card accounts, payroll runs, contractors and equity transactions, how far behind the books are, and how soon after month-end the statements are due; the cost is in startup accounting cost. Do-it-yourself, a bookkeeper or a CPA firm: see doing your own books or hiring a bookkeeper, bookkeeper, accountant or CPA and choosing an accountant for a startup.
Approving payments, collecting receipts and the board's decisions on stock and pay stay with the company either way; whoever keeps the books needs the cap table, stock documents and payroll reports.
What should the books hand the CPA at year-end?
The books should hand over enough for the CPA to prepare Form 1120 and the filings that ride with it without reconstructing the year.
| Item | What it feeds |
|---|---|
| Bank and card statements for every account, with December reconciled | Balance sheet and Schedule L |
| Year-end trial balance and financial statements | Income and deductions on Form 1120 |
| Payroll reports, Forms 941, 940 and W-2 | Wage deductions and the employer filings |
| Contractor list with W-9s and totals | Form 1099-NEC |
| Cap table, stock ledger, SAFE and note agreements, 83(b) copies, option ledger | Equity on Schedule L, the stock records and Form 3921 |
| Formation and start-up costs; the Delaware report and tax paid or owed | The cost election and the liability |
| Wages and contractor costs by research project | Form 6765 and the payroll election |
| Last year's return and any IRS or state notices | The opening balances and open issues |
Example
All figures are illustrative and in US dollars.
A seed round closes after the founders paid costs personally
A Delaware C corporation closes a $2,000,000 seed round in March. Before closing, the founders paid $40,000 of startup costs on personal cards. The wire lands in the company account and is recorded against the investment documents, tied to the cap table. The $40,000 is tracked as costs the founders paid personally, and each repayment is matched to a receipt, so $36,000 with receipts is easy to support. The other $4,000 has no receipts; whether it can be repaid, and how it is treated, depends on the facts, so it is a question for the company's CPA.
Research spending and the payroll election
A pre-revenue startup with payroll spends $600,000 on research. Only part may count as qualified research, and the credit is a share of the qualified spending above a base amount, so it can be much smaller than the spending or zero. If the company is a qualified small business, it may elect to use up to $500,000 of the credit a year against payroll tax. Whatever the amount, the books need wages by project from payroll and the contractor research payments.
A design contractor paid $9,000
A startup pays a US freelance designer, an individual and not a corporation, $9,000 in three bank transfers over the year, outside any payment card or third-party payment network. It collects a Form W-9 before the first payment. The total is above the $2,000 threshold, so the startup files Form 1099-NEC and sends the designer a copy by February 1, 2027, the deadline for payments made in the tax year. The same $9,000 paid by payment card or through a third-party payment network would be reported by the processor on Form 1099-K, not on the startup's Form 1099-NEC.
Different for you?
- The round has closed or is about to, payroll or contractor payments have started, and the next investor update is due while the founders still keep the books: the work to hand off first includes the bank reconciliation, payroll, equity entries and the monthly close, and the CPA files on the same books; see startup accounting and tax help.
- The books are behind or in a spreadsheet and a raise is months away: see cleaning up your books before fundraising.
- SAFEs, notes or preferred stock need entries that tie to the cap table: see recording a priced round.
- Early team members are paid as contractors and work like employees: see contractors found misclassified in due diligence.
- A March 1 Delaware report, a Form 1120 or a payroll return was missed, payroll tax was withheld but not paid over, or a notice arrived: penalties and interest can keep adding up, and a responsible person can owe unpaid withheld payroll tax personally; bring the notices, cap table and bank statements to startup accounting and tax help.
- A founder or investor outside the US owns 25% or more of the corporation: the books should track each payment, loan and interest amount with that owner, because Form 5472 reports transactions with a foreign related party (IRS instructions); see foreign-owned C corporation filing.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Trust fund recovery penalty as a share of unpaid withheld tax Applies to the unpaid trust fund tax of a responsible person who acted willfully under IRC section 6672 | 100% | IRS: Publication 15, Employer's Tax Guide Checked |
| General trust fund recovery penalty assessment period Generally measured from the later of return filing or the succeeding April 15; no assessment limit for an unfiled return | 3 years | IRS: Trust Fund Recovery Penalty manual Checked |
| Form 1099-NEC reporting threshold for payments made in 2026 Generally, reportable service payments to one payee during 2026; backup withholding can require filing at any amount | $2,000 Tax year 2026 | IRS: Am I required to file a Form 1099 or other information return? Checked |
| Form 1099-NEC filing and recipient deadline After the payment year; moves to the next business day for a weekend or legal holiday | January 31 | IRS: Instructions for Forms 1099-MISC and 1099-NEC Checked |
| Backup withholding rate on reportable payments Current federal backup withholding rate for payments subject to the rule | 24% | IRS: Backup withholding Checked |
| Section 83(b) election deadline After restricted property is transferred, not after it vests | 30 days | IRS: Publication 525, Taxable and Nontaxable Income Checked |
| Deadline to furnish Form 3921 to employees for 2026 ISO exercises The regular date is January 31 after the exercise year; January 31, 2027 is a Sunday, so the due date moves to the next business day | February 1, 2027 Tax year 2026 | IRS: General Instructions for Certain Information Returns Checked |
| Form 3921 IRS copy on paper, 2026 exercises The regular paper date is February 28; February 28, 2027 is a Sunday, so the due date moves to the next business day. Electronic filing is later, and a filer with 10 or more information returns in total must e-file. | March 1, 2027 Tax year 2026 | IRS: General Instructions for Certain Information Returns Checked |
| Form 3921 IRS copy filed electronically, 2026 exercises The regular electronic date is March 31 after the exercise year; March 31, 2027 is a Wednesday, so no weekend shift applies. | March 31, 2027 Tax year 2026 | IRS: General Instructions for Certain Information Returns Checked |
| Gross receipts limit for a qualified small business making the research payroll election Gross receipts for the tax year must be less than this, under section 448(c)(3) rules that include investment income | $5 million | IRS: Instructions for Form 6765 Checked |
| Maximum research credit a qualified small business can elect against payroll tax per year Tax years beginning after 2022; the elected amount is also limited to the year's credit and, for C corporations, the general business credit carryforward | $500,000 | IRS: Instructions for Form 6765 Checked |
| Delaware non-exempt domestic corporation annual report fee Separate from franchise tax | $50 | Delaware Division of Corporations: Annual Report and Tax Information Checked |
| Delaware authorized shares tax, up to 5,000 shares Minimum tax under the authorized shares method | $175 | Delaware Division of Corporations: How to Calculate Franchise Taxes Checked |
| Delaware assumed par value method minimum tax Ordinary minimum under the assumed par value capital method | $400 | Delaware Division of Corporations: How to Calculate Franchise Taxes Checked |
| Delaware ordinary corporation franchise tax maximum Does not apply to a designated large corporate filer | $200,000 | Delaware Division of Corporations: Annual Report and Tax Information Checked |
| Delaware franchise tax threshold for estimated installments Corporations owing this amount or more pay estimated installments | $5,000 | Delaware Division of Corporations: Annual Report and Tax Information Checked |
| Delaware corporation charter-void delinquency period Unpaid franchise tax or an unfiled annual franchise tax report, absent more time granted by the Secretary of State | 1 year | Delaware Code: Title 8, Section 510 Checked |
| Calendar-year 2026 Form 1120 filing deadline Regular deadline before any valid extension | April 15, 2027 Tax year 2026 | US Code: Section 6072(a) Checked |
| Form 1120 Form 7004 filing extension Form 7004 must generally be filed by the regular due date; this does not extend the time to pay | Six months Tax year 2026 | IRS: Instructions for Form 7004 Checked |
| Organizational cost threshold that reduces the immediate deduction The immediate organizational cost deduction is reduced by qualifying organizational costs above this amount | $50,000 | IRS: Publication 583, Starting a Business and Keeping Records Checked |
| Start-up and organizational cost amortization period Remaining qualifying start-up and organizational costs, beginning with the month the business begins | 180 months | IRS: Instructions for Form 1120 Checked |
| Cash-method gross receipts test for corporations and partnerships Average annual gross receipts for the 3 tax years before the current one, for tax years beginning in 2026 (section 448(c)); aggregation rules apply. Same figure as us.inventory.small-business-gross-receipts-limit, kept separate for the cash-method rule. | $32,000,000 Tax year 2026 | IRS: Rev. Proc. 2025-32, section 4.30 (Internal Revenue Bulletin 2025-45) Checked |
| General income-tax supporting record retention period Generally after filing or the return due date, whichever is later; longer periods apply in specified cases. Property-basis records last through the limitation period for the taxable disposition year; unfiled and fraudulent returns have no limitation period. | 3 years | IRS: Publication 583, How Long To Keep Records and Table 3 Checked |
| US employment tax record retention Minimum, counted from the date the tax becomes due or is paid, whichever is later | Four years | IRS: Publication 583, Starting a Business and Keeping Records Checked |
| Form 1099-NEC filing and recipient deadline for payments made in 2026 The regular January 31 date falls on a Sunday in 2027, so the due date moves to the next business day | February 1, 2027 Tax year 2026 | IRS: General Instructions for Certain Information Returns Checked |
| Foreign ownership that makes a US corporation a Form 5472 reporting corporation At least this share of vote or value held by one foreign person, directly or indirectly, at any time in the tax year. A single-member LLC wholly owned by one foreign person is treated as such a corporation. | 25% | IRS: Instructions for Form 5472 Checked |
Primary sources
- IRS: Publication 583, Starting a Business and Keeping Records
- 26 CFR 1.6001-1: Records (via GovInfo)
- IRS: Instructions for Form 1120
- 26 CFR 1.195-1: Election to amortize start-up expenditures (via GovInfo)
- 26 CFR 1.248-1: Election to amortize organizational expenditures (via GovInfo)
- IRS: Internal Revenue Manual 5.19.14, Trust fund recovery penalty
- IRS: Revenue Procedure 2025-32 (section 448(c) gross receipts test)
- US Code: 26 U.S.C. 448, limitation on use of cash method (gross receipts test)
- IRS: Publication 15, Employer's Tax Guide
- IRS: Instructions for Forms 1099-MISC and 1099-NEC
- IRS: Instructions for the Requester of Form W-9
- 26 CFR 1.83-2: Election to include in gross income in year of transfer (via GovInfo)
- IRS: Instructions for Forms 3921 and 3922
- IRS: General Instructions for Certain Information Returns
- IRS: Instructions for Form 6765
- IRS: Instructions for Form 8974
- Delaware Division of Corporations: Annual report and franchise tax payment
- Delaware Code: Title 8, chapter 5, franchise tax
- IRS: Instructions for Form 5472
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.