Don't obsess over tax and legal structures

Software engineers like optimizing things. It’s easy to nerd snipe them with something that looks like a well defined optimization problem with a few variables and is actually a big complicated mess of badly defined and contradictory almost-facts.

This means that many people starting out get obsessed over tax structures. What kind of legal entity should they use? Where should it be incorporated? What can it expense?

People also often stress about getting into trouble. What if they earn money and then go to prison for tax evasion because they didn’t declare it properly?

I am not an accountant or a lawyer and you shouldn’t take advice from random strangers on the internet, but in most countries (I’ve heard Germany and Austria might be exceptions), it’s totally ok to stumble blindly through this stuff at first until you’re making significant dough.

1. Even if you are making money, you can nearly always get a higher ROI on spending time on marketing, sales, product, pretty much anything except tax optimization. It’s far easier to make an extra dollar than it is to save a dollar on optimization, especially when your revenue is low.

2. Tax offices around the world have a reputation for being scary, but it’s pretty unlikely that you will be go to prison due to ignorance, and even unlikely that you’ll need to pay a fine for failing to do something completely by the book when starting out.

All your energy in the beginning should be focused on creating revenue. The hardest dollar to earn is usually the first one, so if you haven’t done that yet then ignore as much of the operational stuff as you can, and focus on making your first sale. The other stuff will definitely give you headaches as you grow, but premature optimization here kills far far more businesses than under-optimization does.

Some clarifications

This article was discussed a bit on hackernews, so here are some clarifications based on the comments there.

The above doesn’t mean you shouldn’t optimize your taxes. The moment you can afford it, consult with a professional accountant to get advice tailored to you. The “obssession” part is more aimed at:

• Pre-revenue founders: people who are spending hours ‘researching’ this themselves (e.g. reading content-marketing articles about how to incorporate in some dodgy island and pay zero tax), or who are worried about sending their first invoice because they don’t have a business bank account yet. Just ship the product and send the invoice or add the Stripe payment link and worry about that later.
• Startups that already have revenue, but instead of focusing on scaling that, the founder also gets obssessed (again, usually from clickbait articles, not professional advice) about optimizing their own personal taxes and business taxes. Again, this can be worthwhile, but be objective about how many hours you’re spending on it compared to how much it’s actually helping

Also it’s completely worth investing the time to understand this stuff yourself at some point. Accountants are professionals but they

• might not be good at their job
• might not know everything about your situation or make wrong assumptions

Every successful founder does a deep dive into nearly every aspect of doing business, including taxes. So the above definitely shouldn’t be taken as a “never spend any time or money on tax stuff”, but rather a “this can be very deep rabbit hole, so be measured in your approach”.