Startup Tax & Accounting Glossary: 100 Terms Founders Actually Need

Section 83(b) election: A filing that tells the IRS to tax restricted stock when it is granted instead of as it vests, so a founder who buys 4,000,000 shares at $0.0001 recognizes $400 of value, not the much larger value at each vesting date. It must reach the IRS within 30 days of the grant or purchase, with no extensions, using Form 15620 or a signed statement. Miss the window and each vesting tranche is ordinary income at its value on the vesting date.

Section 174A: The research expensing rule added by P.L. 119-21 (signed July 4, 2025) that lets a business deduct domestic research and experimental expenditures in full for tax years beginning after December 31, 2024, or elect to amortize them over at least 60 months. Foreign research costs stay on 15-year amortization under Section 174. Businesses with average annual gross receipts of $31 million or less may elect to apply the change retroactively to 2022 through 2024.

Section 280C(c) election: The election to take a reduced research credit so you do not have to cut your research deduction by the amount of the credit. On the regular credit method the reduced election means 15.8% instead of 20%, and it is made on Form 6765 (Item A) with a timely filed original return, including extensions; it cannot be made on an amended return.

409A valuation: An appraisal of a private company's common stock used to set option strike prices at or above fair market value, as IRC Section 409A requires. A valuation by a qualified independent appraiser is presumed reasonable for up to 12 months unless a material event, such as a priced round, makes it stale. Options granted below fair market value can make the holder's income taxable as it vests, plus a 20% additional federal tax.

Section 1045 rollover: A deferral that lets an individual who sells QSBS held more than six months avoid current tax on the gain by buying replacement QSBS within 60 days of the sale. The replacement stock carries over the holding period of the original shares, so the deferred gain can later qualify for the Section 1202 exclusion.

Accrual basis accounting: A method that records revenue when it is earned and expenses when they are incurred, regardless of when cash moves. It is required under GAAP and expected by venture investors and auditors. For tax, C corporations with average gross receipts above the Section 448(c) threshold ($31 million for tax years beginning in 2025, indexed each year) must use it.

Alternative minimum tax (AMT): A parallel individual tax calculation that adds back certain preferences, most often the spread on incentive stock options you exercise and still hold at year-end. For 2026 the exemption is $90,100 for single filers and $140,200 for joint filers, and it phases out at 50 cents per dollar of AMT income above $500,000 and $1,000,000 respectively (Rev. Proc. 2025-32). AMT rates are 26% and 28%.

Alternative simplified credit (ASC): The method most startups use to compute the federal research credit: 14% of qualified research expenses above 50% of the average QREs of the prior three tax years. If the company had no QREs in any one of those three years, the rate is 6% of current-year QREs. It is calculated in Section B of Form 6765.

Annual recurring revenue (ARR): The annualized value of recurring subscription contracts in force on a given date, usually monthly recurring revenue times 12. ARR is an operating metric, not GAAP revenue, and it should exclude one-time implementation fees and uncommitted usage.

Apportionment: The formula a state uses to decide how much of a multistate company's income it can tax. Most states now use a single sales factor, so a company with 30% of its sales sourced to a state reports roughly 30% of its apportionable income there. Sourcing rules for services and SaaS (market-based or cost-of-performance) vary by state.

ASC 606: The US GAAP revenue standard (FASB Topic 606), which recognizes revenue as a company satisfies performance obligations, in five steps: identify the contract, identify the performance obligations, set the transaction price, allocate it, and recognize revenue as each obligation is satisfied. A $24,000 annual SaaS subscription billed upfront is generally recognized at $2,000 a month.

Assumed par value capital method: The alternative Delaware franchise tax calculation based on gross assets and issued shares instead of authorized shares, with a $400 minimum and a $200,000 maximum. A company with 10,000,000 authorized shares, 8,000,000 issued and $1,000,000 of gross assets owes $800 this way (assumed par value capital of $1,250,000 rounds up to $2,000,000, times $400 per million), compared with $85,165 under the authorized shares method.

Audit (financial statement): The highest level of assurance on financial statements: an independent CPA firm tests balances and transactions and issues an opinion on whether the statements are fairly presented under GAAP. Private companies are audited under AICPA standards; public companies under PCAOB standards. Lenders, later-stage investors and acquirers are the usual reasons a startup gets its first audit.

Authorized shares: The maximum number of shares a corporation may issue under its certificate of incorporation. Many Delaware startups authorize 10,000,000 shares, and that count drives the authorized shares franchise tax method, which is why the default Delaware notice can show a tax in the tens of thousands of dollars.

Backup withholding: Federal income tax a payer must withhold at 24% from reportable payments when the payee fails to furnish a correct taxpayer identification number on Form W-9. Collecting W-9s before the first payment avoids the problem.

Beneficial ownership information (BOI): Ownership data that the Corporate Transparency Act required many companies to report to FinCEN. As of October 2026, FinCEN states that US companies are exempt from BOI reporting under its final rule effective August 14, 2026; the remaining requirement is aimed at entities formed under foreign law and registered to do business in a US state.

Bonus depreciation: A first-year deduction for the cost of qualifying business property, such as computers and equipment, instead of depreciating it over several years. P.L. 119-21 made 100% bonus depreciation permanent for property acquired after January 19, 2025.

Burn rate: The cash a company spends per month. Gross burn is total monthly cash outflows; net burn is outflows minus cash collected, and net burn is the figure that drives runway.

Burn multiple: Net burn divided by net new ARR for the same period. A company that burns $2,000,000 in a year to add $1,000,000 of net new ARR has a burn multiple of 2.0. Lower is better, and we treat anything above 2 at Series A as a number the board will ask about.

C corporation: A corporation taxed as a separate entity under Subchapter C at the flat 21% federal rate, filing Form 1120. It is the standard structure for venture-backed startups because it can issue preferred stock to funds and its stock can qualify as QSBS; the trade-off is a second layer of tax on dividends.

CAC payback period: The number of months of gross-margin-adjusted new revenue needed to recover what you spent to acquire it: sales and marketing spend divided by (new MRR times gross margin). Spending $300,000 to add $25,000 of new MRR at an 80% gross margin gives a payback of 15 months.

Cap table: The ledger of who owns a company's equity: common and preferred shares, options, warrants, SAFEs and convertible notes, usually shown on a fully diluted basis. Investors, 409A appraisers and tax advisers all work from it, so errors spread quickly.

Cash basis accounting: A method that records income when cash is received and expenses when they are paid. Many small businesses may use it for tax, but it is not GAAP, and it hides deferred revenue and unpaid bills that investors care about.

Certificate of incorporation: The charter document filed with the state (in Delaware, with the Division of Corporations) that creates a corporation and sets its name, registered agent, authorized shares and par value. Changing authorized shares later requires an amendment and a filing fee.

Chart of accounts: The list of every account in the general ledger, grouped into assets, liabilities, equity, revenue and expenses. A startup chart should separate cost of revenue from operating expenses and break out research payroll, because both feed gross margin and the R&D credit.

Cliff: The initial period before any equity vests. In the common four-year schedule with a one-year cliff, 25% vests on the first anniversary and the rest vests monthly or quarterly over the next three years.

Compilation: The lowest level of CPA service on financial statements: the accountant presents management's numbers in financial statement form without providing any assurance, under the AICPA's SSARS standards (AR-C 80). It is useful for a lender that wants formatted statements but not for an investor that wants comfort.

Convertible note: Short-term debt that converts into equity at a future priced round, usually at a discount and/or a valuation cap. Unlike a SAFE, it accrues interest and has a maturity date, which matters if the round never happens.

Deferred revenue: A liability for amounts billed or collected before the revenue is earned. If a customer pays $120,000 on January 1 for a 12-month contract, $10,000 is recognized as revenue at the end of January and $110,000 remains as deferred revenue.

Delaware annual report: The yearly filing every Delaware corporation submits by March 1 with its franchise tax. The filing fee is $50 for non-exempt domestic corporations, and a late or missing report triggers a $200 penalty plus 1.5% interest per month on the tax and penalty.

Disqualifying disposition: A sale or other transfer of ISO shares before the later of two years from grant and one year from exercise. The spread at exercise (or the actual gain, if smaller) becomes ordinary compensation income, which removes the AMT preference but loses capital gain treatment on that amount.

Disregarded entity: A single-member LLC that is ignored for federal income tax purposes, so its income is reported on the owner's return. A disregarded LLC owned by a foreign person must still file Form 5472 attached to a pro forma Form 1120 every year.

Double-trigger acceleration: A vesting provision that accelerates unvested equity only when two events occur: an acquisition and the holder's termination without cause (or resignation for good reason) within a set window. Acquirers generally prefer it to single-trigger acceleration, which vests on the sale alone.

Early exercise: Exercising stock options before they vest, receiving shares the company can repurchase if you leave. If you file an 83(b) election within 30 days and the strike price equals fair market value, you recognize no income at exercise and start the capital gains and QSBS holding period clocks immediately.

Economic nexus: A sales tax collection obligation triggered by sales volume into a state with no physical presence, permitted since South Dakota v. Wayfair (2018). Most states use a $100,000 annual sales threshold; some also count transactions, and Florida uses $100,000 of taxable remote sales with no transaction test.

Employer identification number (EIN): The nine-digit federal tax ID the IRS issues free on Form SS-4. The online application requires the responsible party's SSN or ITIN, so foreign founders without either apply by phone, fax or mail.

Estimated tax payments: Quarterly prepayments of income tax. Corporations that expect to owe $500 or more pay on the 15th day of the 4th, 6th, 9th and 12th months of the tax year (April 15, June 15, September 15 and December 15 for a calendar year); individuals pay April 15, June 15, September 15 and January 15.

Fair market value (FMV): The price at which property would change hands between a willing buyer and a willing seller, neither under pressure and both reasonably informed. For private-company common stock, FMV for option grants is set by a 409A valuation, and for 83(b) purposes it is the value on the grant date.

FBAR: FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, required of US persons (including US companies) with a financial interest in or signature authority over foreign accounts whose combined value exceeds $10,000 at any time in the year. It is filed electronically through BSA E-Filing, not with the tax return, and is due April 15 with an automatic extension to October 15.

Foreign qualification: Registering an entity formed in one state to do business in another, such as a Delaware C corporation with an office and employees in Miami registering with the Florida Division of Corporations. Qualifying adds that state's annual report and usually its income and payroll tax filings.

Four-part test: The IRC Section 41(d) test for qualified research. The activity must have a permitted purpose (new or improved function, performance, reliability or quality), be technological in nature (relying on engineering, computer science or the physical or biological sciences), seek to eliminate technical uncertainty, and use a process of experimentation; each business component must pass all four.

Franchise tax: A state tax on the privilege of existing or doing business in the state, often not based on income. Delaware's corporate franchise tax ranges from $175 to $200,000 under the authorized shares method and from $400 to $200,000 under the assumed par value capital method, due March 1.

Fully diluted capitalization: The total of all issued shares plus all outstanding options and warrants and the unallocated option pool, sometimes also counting shares that SAFEs and notes would convert into. Ownership percentages in term sheets are almost always quoted on this basis.

Form 940: The annual federal unemployment (FUTA) tax return. FUTA is 6.0% of the first $7,000 of each employee's wages, reduced by a credit of up to 5.4% for state unemployment tax paid on time, so most employers pay 0.6%, or $42 per employee.

Form 941: The quarterly federal payroll return reporting withheld income tax and Social Security and Medicare taxes, due the last day of the month after each quarter (April 30, July 31, October 31, January 31). The R&D payroll tax credit is claimed on it through Form 8974.

Form 1065: The federal partnership return filed by multi-member LLCs and partnerships, due March 15 for calendar-year entities. It reports income but pays no federal income tax; each partner receives a Schedule K-1.

Form 1099-K: The information return payment processors and marketplaces issue for card and third-party network payments. After P.L. 119-21, third-party network reporting applies only when a payee has more than $20,000 and more than 200 transactions in a year; card payments are reported regardless of amount.

Form 1099-NEC: The return reporting nonemployee compensation paid to US contractors. For payments made in 2026 the threshold is $2,000 per payee (up from $600), indexed for inflation after 2026, and both the IRS copy and the recipient copy are due January 31.

Form 1120: The US corporation income tax return for C corporations, due the 15th day of the 4th month after year-end (April 15 for calendar-year companies). The federal rate is a flat 21%, and a return is required even with no revenue.

Form 1120-S: The income tax return for S corporations, due March 15 for calendar-year companies. The corporation generally pays no federal income tax; income and losses pass to shareholders on Schedule K-1.

Form 2553: The election to be taxed as an S corporation, signed by all shareholders. It is due no later than two months and 15 days after the start of the tax year it should take effect, and late-election relief is available under Rev. Proc. 2013-30 in many cases.

Form 5472: The information return a 25% foreign-owned US corporation, or a foreign-owned single-member LLC, files to report transactions with related parties. The penalty for failing to file is $25,000 per form, plus another $25,000 if the failure continues more than 90 days after IRS notice, and foreign-owned disregarded entities cannot e-file it.

Form 6765: Credit for Increasing Research Activities: the form used to calculate the federal R&D credit (regular or ASC method), make the Section 280C election and elect the payroll tax offset of up to $500,000 for qualified small businesses.

Form 7004: The application for an automatic six-month extension to file business returns such as Forms 1120, 1120-S and 1065. It extends the time to file, not the time to pay, so tax still owed after the original due date accrues interest and penalties.

Form 8832: The entity classification election, used for example by an LLC that wants to be taxed as a C corporation. The election can take effect up to 75 days before or 12 months after it is filed.

Form 8974: The form a qualified small business attaches to Form 941 to apply its elected research credit against payroll taxes. The credit can be used starting with the first calendar quarter that begins after the company files the income tax return making the election.

Form 15620: The IRS form for making a Section 83(b) election, an alternative to drafting your own signed statement. It must still be mailed to the IRS within 30 days of the transfer, and you should keep proof of mailing.

Form W-2: The annual wage and tax statement for employees, due to both the employee and the Social Security Administration by January 31. It reports wages, withholding and, for disqualifying ISO dispositions and NSO exercises, the compensation income from equity.

Form W-8BEN and W-8BEN-E: The certificates a foreign individual (W-8BEN) or foreign entity (W-8BEN-E) gives a US payer to document foreign status and claim treaty benefits. A US company paying an overseas contractor should collect one instead of a W-9.

Form W-9: The form a US person or entity gives a payer to provide its taxpayer identification number. Collect it before the first payment to any contractor or vendor, because it drives 1099 reporting and avoids 24% backup withholding.

GAAP: US generally accepted accounting principles, set by the Financial Accounting Standards Board and organized in the Accounting Standards Codification (ASC). Audited statements for US startups are prepared under GAAP, which requires accrual accounting.

Gross margin: Revenue minus cost of revenue, divided by revenue. For SaaS, cost of revenue usually includes hosting, third-party software embedded in the product, customer support and implementation staff, so moving those costs below the line overstates margin.

Gross revenue retention (GRR): The share of starting recurring revenue retained after churn and downgrades, excluding expansion, so it can never exceed 100%. Start with $1,000,000 of ARR, lose $80,000 to churn and $20,000 to downgrades, and GRR is 90%.

Incentive stock option (ISO): An employee-only stock option under IRC Section 422 that is not taxed at exercise for regular tax (the spread is an AMT preference) and produces long-term capital gain if shares are held two years from grant and one year from exercise. Only $100,000 of grant-date value can first become exercisable per employee per year, and the option must be exercised within three months after employment ends to keep ISO status.

Individual taxpayer identification number (ITIN): A nine-digit IRS number for individuals who need to file US tax returns but are not eligible for a Social Security number, requested on Form W-7. A foreign founder does not need an ITIN to get an EIN for a company.

Issued and outstanding shares: Shares a corporation has actually issued to holders and not repurchased. Delaware's assumed par value capital method uses issued shares, which is why reporting them accurately on the annual report can cut the franchise tax sharply.

Schedule K-1: The statement a partnership (Form 1065) or S corporation (Form 1120-S) issues to each owner showing that owner's share of income, deductions and credits. Owners owe tax on K-1 income even if the entity distributed no cash, which is one reason venture funds avoid investing in LLCs.

Limited liability company (LLC): A state-law entity that protects owners from business debts and is taxed by default as a disregarded entity (one owner) or a partnership (two or more owners). It can elect corporate tax treatment on Form 8832 or S corporation status on Form 2553, but most founders raising venture money convert to a C corporation before a priced round.

Liquidation preference: The amount preferred stockholders receive in a sale or wind-down before common stockholders get anything, most often 1x the original investment on a non-participating basis. It is a major reason a 409A valuation prices common stock well below the latest preferred price.

Market-based sourcing: A state rule that assigns receipts from services and intangibles, including SaaS, to the state where the customer receives the benefit rather than where the work is performed. Most states with income taxes now use it for apportionment.

Month-end close: The process of reconciling bank and card accounts, booking accruals, deferrals, payroll and depreciation, and producing financial statements for the month. We aim for a close within 10 business days for seed-stage teams; anything slower means the board sees stale numbers.

Monthly recurring revenue (MRR): The normalized monthly value of active recurring contracts. An annual contract of $36,000 counts as $3,000 of MRR regardless of how it is billed.

Net revenue retention (NRR): The share of starting recurring revenue retained after churn, downgrades and expansion from the same customers over 12 months. Start with $1,000,000 of ARR, add $250,000 of expansion, lose $100,000 to churn and downgrades, and NRR is 115%.

Nexus: The connection with a state that allows it to impose a tax obligation on a business. Physical presence (employees, an office, inventory) creates nexus for most taxes; economic nexus from sales volume is common for sales tax and for income tax in many states.

Non-qualified stock option (NSO): A stock option that does not meet ISO rules, the only type that can be granted to contractors, advisors and directors. The spread at exercise is ordinary income, subject to withholding and payroll taxes for employees, and the company gets a matching deduction.

Option pool: Shares reserved under an equity incentive plan for future grants to employees and advisors. A typical market range at seed and Series A is 10% to 20% of fully diluted capitalization, and investors usually require the pool to be created or expanded before their money comes in, which dilutes existing holders only.

Par value: The nominal minimum price per share stated in the certificate of incorporation, often $0.00001 or $0.0001 for startups. A low par value keeps the price founders pay for shares small and keeps the Delaware franchise tax low under the assumed par value capital method.

Pass-through entity tax (PTET): An elective state tax paid at the partnership or S corporation level that lets owners deduct state income tax at the entity level, outside the federal SALT deduction cap. It matters only in states with an income tax; Florida, Texas and Washington have no personal income tax and therefore no PTET.

Payroll tax offset (R&D): An election that lets a qualified small business apply up to $500,000 a year of its federal research credit against employer payroll taxes instead of income tax. Qualified means gross receipts under $5 million for the year and no gross receipts in any year before the five-year period ending with that year; the election is made on Form 6765 and claimed on Form 8974.

Pro forma Form 1120: A Form 1120 that a foreign-owned single-member LLC completes only with its name, address and a few identifying items, solely as a cover for Form 5472. It is mailed or faxed to the IRS, written "Foreign-owned U.S. DE" across the top, and due by the corporate return deadline including extensions.

Preferred stock: A class of stock, usually issued to investors in priced rounds, with rights common stock lacks, such as a liquidation preference and protective provisions. Because preferred sits ahead of common in a sale, 409A valuations price common at a discount to the preferred round price.

Qualified research expenses (QREs): The costs that count toward the federal research credit: taxable wages for people performing, supervising or directly supporting qualified research, supplies used in that research, amounts paid for cloud computing used to conduct it, and generally 65% of payments to US contractors performing it. Research conducted outside the United States does not qualify.

Qualified small business stock (QSBS): Stock of a domestic C corporation that can qualify for the Section 1202 gain exclusion if it was acquired at original issue and the company met the gross-asset and active-business tests. For stock issued after July 4, 2025, the exclusion is 50% after three years, 75% after four and 100% after five, the per-issuer cap is $15 million (indexed after 2026) or 10 times basis, and the gross-asset limit is $75 million; earlier stock keeps the 5-year, $10 million, $50 million rules.

Quality of earnings (QoE): A diligence report, usually commissioned by a buyer or investor before an acquisition or large round, that tests whether reported revenue, EBITDA and working capital are accurate and repeatable. It is not an audit, but it often uncovers the same revenue recognition and cutoff problems.

Reasonable compensation: The salary an S corporation must pay a shareholder who works in the business before taking distributions, measured by what the business would pay someone else for the same role. The IRS can recharacterize distributions as wages, with payroll tax and penalties, when salary is unreasonably low.

Registered agent: A person or company with a physical address in the state who accepts legal process and official mail for an entity. Every Delaware corporation must maintain one, and losing your agent can cost the company its good standing.

Research credit (Section 41): A federal credit for increasing research activities, computed on Form 6765 either as 20% of qualified research expenses above a historical base (regular method) or as 14% of QREs above half the prior three-year average (ASC). Unused credits carry forward 20 years, and startups that qualify can apply up to $500,000 a year against payroll taxes.

Restricted stock unit (RSU): A promise to deliver shares (or cash) when vesting conditions are met. RSUs are taxed as ordinary income on the value of the shares at settlement, and an 83(b) election is not available for them, which is why private companies use double-trigger RSUs that settle only after a liquidity event.

Review (financial statement): A limited-assurance CPA engagement under the AICPA's SSARS (AR-C 90): the accountant performs analytical procedures and inquiries and states whether anything suggests the statements are materially misstated. It costs much less than an audit and does not test controls or confirm balances with third parties.

Runway: The number of months a company can operate before running out of cash: cash on hand divided by average monthly net burn. With $3,600,000 in the bank and $300,000 of monthly net burn, runway is 12 months.

S corporation: A corporation that elects under Subchapter S (Form 2553) to pass income through to shareholders instead of paying corporate tax. It is limited to 100 shareholders and one class of stock, and shareholders generally must be US citizens or residents (no nonresident aliens, corporations or partnerships), which rules it out for venture-backed companies.

SAFE (simple agreement for future equity): An investment contract, introduced by Y Combinator in 2013 and revised to the post-money form in 2018, that converts into preferred stock at the next priced round, usually subject to a valuation cap and/or discount. It is not debt and carries no interest or maturity date; whether the QSBS holding period starts at SAFE signing or at conversion is not settled.

Safe harbor (estimated tax): The prepayment levels that avoid the federal underpayment penalty. Individuals are protected if they pay 100% of last year's tax (110% if prior-year AGI exceeded $150,000) or 90% of this year's; corporations can use 100% of last year's tax, except that a large corporation (taxable income of $1 million or more in any of the three prior years) can use it only for the first installment.

Sales tax: A state and local tax on retail sales of tangible goods and, in some states, digital products and services, collected by the seller from the buyer and remitted to the state. A seller must register before collecting, and each state decides separately whether SaaS is taxable.

Strike price: The fixed price per share at which an option holder can buy stock, set on the grant date. To avoid Section 409A problems it must be at least fair market value on that date, and for ISOs granted to holders of more than 10% of the voting power it must be at least 110% of fair market value.

Tax year (fiscal year): The 12-month period a business uses to compute taxable income. Most startups use the calendar year; a C corporation may choose a different fiscal year, but S corporations and partnerships are generally limited to the calendar year unless they make a Section 444 election or show a business purpose.

Transfer pricing: The rules under IRC Section 482 that require transactions between related companies, such as a US parent and its overseas development subsidiary, to be priced as if the parties were unrelated (the arm's length standard). Contemporaneous documentation meeting Treas. Reg. 1.6662-6 is what protects the company from 20% and 40% penalties on IRS adjustments.

VAT and GST: Value-added tax and goods and services tax, the consumption taxes most countries outside the US charge in place of sales tax. Many jurisdictions require foreign sellers of digital services to consumers to register and charge tax from the first sale, and the EU lets sellers report cross-border consumer sales through its One Stop Shop.

Vesting: The schedule over which equity becomes owned outright, usually four years with a one-year cliff for employees and founders. Founder stock that vests is restricted property under Section 83, which is why an 83(b) election matters even when the founder paid full value.

Wayfair (South Dakota v. Wayfair): The 2018 US Supreme Court decision that ended the physical presence requirement for sales tax and allowed states to impose collection duties on remote sellers based on sales volume. Every state with a statewide sales tax now has an economic nexus rule.