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When international founders build a U.S. startup, accounting expectations can feel confusing fast.
Some rules are legally required. Some are investor expectations. And some are operational best practices that become painful to ignore later.
The problem is that these categories often get blurred together. Founders hear advice like “you need GAAP accounting,” “you must issue 1099s,” or “you have to move to accrual,” without understanding which requirements are actually mandated by law and which are simply standard practice as companies grow.
For globally distributed startups, the complexity increases. Entity type, where your company is incorporated, where your team works, and whether payments cross borders can all change what filings, reporting, and record-keeping are required.
This guide separates what’s legally required, what’s commonly expected as you scale, and what international founders frequently overlook when running a U.S. company with a small global team.
Use it as a practical checklist to review with your CPA — not as a substitute for one.
Understanding payroll from day one.
Read our Founder’s Guide to Getting Started.
What’s legally required (and where stipulations apply)
1) U.S. federal tax filings
Most U.S. entities have some form of annual federal tax filing obligation, but the specific return — and whether it’s an income tax return or an information return — depends on how your company is classified for U.S. tax purposes.
The IRS requires businesses to keep records and file returns that apply to their entity type and activities.
Founder takeaway: Don’t rely on blanket rules like “all businesses file X.” Confirm the company’s tax classification early, especially if you formed an LLC, have foreign ownership, or operate across borders.
2) Employer Identification Number (EIN)
If your company needs an EIN (for example, if you operate as a corporation or have employees), you must obtain one before you manage your business accounting.
3) Delaware franchise tax and annual filings
If your company is formed in Delaware, that state’s filing obligations apply. If you formed elsewhere, your state will have its own requirements.
Delaware corporations to file an Annual Report and pay franchise tax. Noncompliance can trigger penalties and loss of good standing. Delaware LLCs do not file an annual report but must pay an annual tax.
4) Record-keeping
The IRS expects you to keep records that support the income, expenses, and positions you include on your return. The IRS does not generally mandate a specific bookkeeping system; what matters is that it clearly reflects your activity.
How long the IRS recommends you keep records:
3 years in standard cases
Employment tax records: at least 4 years after the tax is due or paid, whichever is later
7 years in specific loss/bad debt situations
Indefinitely if no return is filed or if a fraudulent return is filed
5) Contractor reporting: Form 1099-NEC
If you pay independent contractors, you may have a Form 1099-NEC obligation, depending on factors such as who you paid, how they’re classified, and whether the payment meets IRS reporting criteria.
International contractors and Form 1042‑S
Payments involving international individuals can trigger different reporting and withholding regimes, depending on two primary variables where services are performed. The IRS notes that nonemployee compensation paid to nonresident aliens is reported on Form 1042‑S, and withholding may be required. The correct treatment is highly dependent on the underlying situation, however.
Founder takeaway: For globally distributed teams, don’t “guess and file.” Hire a tax professional to confirm the correct form, sourcing, and withholding approach for cross-border contractor payments.
What’s recommended (not always legally required but routinely expected as you scale)
1) Accounting that can withstand proper diligence–often GAAP-aligned
U.S. GAAP is a standard used to produce consistent financial statements. While GAAP is most closely associated with public-company reporting, private entities may still be expected to produce GAAP-comparable financials to meet investor, lender, or contractual expectations.
Practical framing: Early-stage companies don’t need perfection. They do need a set of books that can be explained quickly, reconciled, and converted to the required standard without a full rebuild, however.
2) Accrual-basis accounting, once you achieve real operating complexity
Accrual accounting recognizes revenue when it’s earned and expenses when they’re incurred — regardless of cash movement — providing a true picture of a company’s financial health and forming the foundation for core financial statements and investor-ready financial management. This typically maps more closely to how subscription revenue, prepaid contracts, and multi-month delivery actually work.
3) ASC 606: Revenue Recognition from Customer Contracts
ASC 606 is a GAAP framework for recognizing revenue from customer contracts. If you’re selling subscriptions, annual prepayments, usage-based components, or bundles, these regulations quickly become relevant.
4) Stock-based compensation tracking (ASC 718)
If you issue equity to employees, founders, or contractors, stock-based compensation accounting can become part of diligence expectations later — even if it feels “non-cash” today.
Founder takeaway: Stock-based compensation (ASC 718) must be recorded as an expense under GAAP, even though no cash changes hands. Founders need to account for equity grants properly to understand their true labor costs and present accurate financials to investors.
5) Dual reporting for international founders
International founders may need local statutory accounts under local rules while also producing U.S.‑style reporting for U.S. investors. This is a common practice, but it’s an operational decision: you’re trading a bit of overhead for cleaner fundraising and governance later.
6) Document retention beyond the IRS minimum
Many teams choose a longer retention window than the IRS minimums for operational continuity and audit readiness, but it shouldn’t be treated as a universal rule, especially across countries and for corporate/equity records.
Common practices that look normal but create avoidable risk
1) Staying on cash-basis accounting too long
Cash basis can be workable early. It becomes increasingly hard to explain once you have prepaid contracts, deferred revenue, developed multi-month delivery, or experience meaningful payables/receivables.
2) Using a default chart of accounts that doesn’t match how startups spend
A chart of accounts built for a generic small business often doesn’t produce investor-ready reporting without rework.
3) Waiting to formalize accounting policies until late fundraising
It’s not about being a “big company.” It’s about not having to re-paper the last 18–36 months under time pressure.
4) Miscalculating Delaware franchise tax
The calculation method matters, and the difference can be meaningful for companies with large authorized share counts. Delaware franchise tax can be based solely on the number of authorized shares, meaning startups that authorize millions of shares (common for option pools and VC financing) could face very large tax bills unless they use alternative calculations like the assumed par value method, which often dramatically reduces the tax owed.
5) Treating 1099s as an “end of year” task
The operational failure mode is simple: you don’t collect tax forms up front, you can’t reconcile vendor status later, and filings get rushed.
Decision framework: when to upgrade your accounting
Stage | Minimum baseline | Recommended upgrade |
Pre-revenue | Basic bookkeeping + organized receipts | Startup-appropriate chart of accounts |
Seed | Books that reconcile monthly | Accrual accounting; documented policies for key areas (revenue, payroll, equity) |
Series A | Consistent GAAP-comparable reporting | Monthly close process; controller support (in-house or outsourced) |
Series B+ | Audit-ready GAAP financials | Audit-ready documentation and controls; dedicated finance function |
What founders typically do next
Confirm your entity classification and filing obligations.
“U.S. company” is not specific enough — C‑corp, partnership, and LLC filing requirements differ, especially with foreign founders or cross-border activity.Recalculate Delaware franchise tax (if formed in Delaware).
Use Delaware’s guidance and confirm you’re using the most appropriate method for your cap table and authorized shares.Decide when to move to accrual.
If you’re selling annual subscriptions, taking prepayments, or planning a financing round, accrual reporting usually reduces future cleanup.Build a contractor payment workflow that starts before the first payment.
Classify vendors, collect the right forms early, and track totals throughout the year. Use IRS guidance as the source of truth.Treat “global team” as a tax and payroll systems problem, not just a hiring problem.
If you haven’t already, these two primers are useful for international founders operating in the US: International founders and US taxes and International founders: US bank accounts.
Good startup accounting is less about sophistication and more about staying consistently explainable; this includes clean records, clear classifications, and a system you can scale without rewrites.
If payroll is on your near-term roadmap, especially with a distributed team, use Plane’s founder guide to get the basics right before you run your first cycle.
Legal disclaimer: The information provided is for informational purposes only and should not be considered legal advice.
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