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patio11's profile
Patrick McKenzie
Patrick McKenzie
Patrick McKenzie
@patio11

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Patrick McKenzie

@patio11

I work for the Internet, at @stripe, mostly on accelerating startups. Opinions here are my own.

東京都 Tokyo
kalzumeus.com
Joined February 2009

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    1. Patrick McKenzie‏ @patio11 10 Jan 2018
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      Atlas just released my favorite feature yet: tools to help companies incorporated with us navigate tax season. https://stripe.com/blog/atlas-taxes … Unsurprisingly for someone who filed five tax returns last year in two countries, I was very enthusiastic about getting this done. Thoughts:

      5 replies 17 retweets 148 likes
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    2. Patrick McKenzie‏ @patio11 10 Jan 2018
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      I'll never forget my two thoughts when I sold my first copy of software over the Internet: "This is amazing. I hope I don't go to jail." That's the power that taxes holds over budding entrepreneurs.

      2 replies 4 retweets 31 likes
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    3. Patrick McKenzie‏ @patio11 10 Jan 2018
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      Taxes are treated as something like the affairs of obscure and malevolent wizards. There exists a tome of rules. You're forbidden from knowing it. Mispeaking the magic words may turn you into a newt. This is nonsense.

      2 replies 3 retweets 21 likes
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    4. Patrick McKenzie‏ @patio11 10 Jan 2018
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      The IRS is, as a result of reforms dating back decades, among the most user-friendly institutions in the federal government. They publish all the rules online, at a 5th grade reading level. Millions of people successfully file every year without incident.

      1 reply 5 retweets 21 likes
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    5. Patrick McKenzie‏ @patio11 10 Jan 2018
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      But the knowledge gap, and the comfort gap, persists. The standard advice is "Talk to an accountant", which founders hear as "Don't bother me; I have no answers." That advice isn't operationalizable. It's like telling a flower shop "Printer problems? Find an engineer."

      1 reply 0 retweets 13 likes
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    6. Patrick McKenzie‏ @patio11 10 Jan 2018
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      (Yep, accountants specialize, just like engineers do. There are, in fact, accountants who would be unable to give anything but cursory advice to a small business trying to sell software over the Internet. Nobody asks me to debug airplane engines, after all.)

      1 reply 0 retweets 6 likes
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    7. Patrick McKenzie‏ @patio11 10 Jan 2018
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      Even though taxes aren't wizardry, for better or worse, I'm legally not permitted to engage in the practice of non-wizardry. (I seriously considered getting a CPA last year so I would not have to say "This is not accounting advice" so much when writing for Atlas.)

      2 replies 0 retweets 11 likes
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    8. Patrick McKenzie‏ @patio11 10 Jan 2018
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      But I can give you some opinionated advice as someone who ran (small, multinational) Internet companies for a decade.

      1 reply 0 retweets 7 likes
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    9. Patrick McKenzie‏ @patio11 10 Jan 2018
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      90% of the total effort of taxes is systems design. You want to architect your business such that recordkeeping has a "pit of success", where it is easy and automatic to do the right thing.

      1 reply 1 retweet 23 likes
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      Patrick McKenzie‏ @patio11 10 Jan 2018
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      If you have good records, your accountants will have less opportunities for mistakes, more options for helping you, and more cycles to spend on helping you manage your business' financial health.

      6:11 AM - 10 Jan 2018
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      1 reply 1 retweet 10 likes
        1. New conversation
        2. Patrick McKenzie‏ @patio11 10 Jan 2018
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          You should prefer to spend scarce founder brainsweat on growing your business rather than either tax administration or optimization. Tax administration is simply table stakes for running a business; optimization is almost never going to be your competitive advantage.

          1 reply 0 retweets 12 likes
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        3. Patrick McKenzie‏ @patio11 10 Jan 2018
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          Virtually no entreprenur really loves the experience of paying taxes. At small scales of a business, the best way to ensure that you're paying only what you owe is to make sure you capture all business expenses in your books.

          1 reply 2 retweets 9 likes
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        4. Patrick McKenzie‏ @patio11 10 Jan 2018
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          One year the assistant who I had doing my books for me dropped one page of credit card statements on the floor while doing data entry. It had ~$14,000 of expenses on it (a business trip). If they hadn't been calculated in our P&L, that would have cost us $5,000.

          1 reply 1 retweet 7 likes
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        5. Patrick McKenzie‏ @patio11 10 Jan 2018
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          "How would you not notice your profit figure being off by $14,000?" That is *very easy* to do if you do not have your systems and processes set up to effortlessly keep accurate records. Your business will *very quickly* outrun your working memory.

          1 reply 1 retweet 7 likes
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        6. Patrick McKenzie‏ @patio11 10 Jan 2018
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          You've probably kept up a household before. This is harder. Speaking of which: separate your household expenses from your business expenses.

          1 reply 1 retweet 11 likes
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        7. Patrick McKenzie‏ @patio11 10 Jan 2018
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          In the beginning, like many entrepreneurs, I was using my own checking account, Paypal account, and credit card for the business. This is very suboptimal.

          3 replies 1 retweet 9 likes
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        8. Patrick McKenzie‏ @patio11 10 Jan 2018
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          Credit cards are available like candy. Get a new one; religiously use it for anything business-related. This helps you default to success: the credit card statement is a record of most business expenses and no non-business expenses; no expenses sneak onto your personal card.

          1 reply 4 retweets 16 likes
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        9. Patrick McKenzie‏ @patio11 10 Jan 2018
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          If you inadvertently use it for something you shouldn't have, your accountant or bookkeeper can correct that for you. This discipline will prevent you from having to walk through literally every transaction you made last year trying to find the ones that were business related.

          1 reply 1 retweet 6 likes
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        10. Patrick McKenzie‏ @patio11 10 Jan 2018
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          In general, my peers and I are relatively conservative with regards to having the business pay for things. This is a great thing to discuss with your accountant; they can help you calibrate a division appropriate for your jurisdiction, industry, and comfort level.

          1 reply 1 retweet 8 likes
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        11. Patrick McKenzie‏ @patio11 10 Jan 2018
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          Revenue is so much easier to track for Internet businesses than expenses are, principally because you're probably using a payments processor which keeps really good records as a matter of course.

          2 replies 1 retweet 5 likes
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        12. Patrick McKenzie‏ @patio11 10 Jan 2018
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          In Japan we have to produce a record of revenue per month, which (back in the day) I had to write Ruby scripts to get out of my Stripe account. Pro-tip: sometime between then and now Stripe added a monthly report; you can find it in Business -> Data at https://dashboard.stripe.com/account/data 

          1 reply 0 retweets 6 likes
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        13. Patrick McKenzie‏ @patio11 10 Jan 2018
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          (You can *also* use Sigma to write SQL directly against your Stripe account. Which is probably overkill for most small Internet businesses but it's a really gloriously fun kind of overkill. Yeah, nothing like tax season to make me think that SQL is a fun diversion.)

          1 reply 1 retweet 14 likes
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        14. Patrick McKenzie‏ @patio11 10 Jan 2018
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          Anyhow, back to taxes. You can, and should, have conversations with your accountant well in advance of tax season (which is approximately January through April). They've got lots of free time the rest of the year, and you have some planning to do.

          1 reply 1 retweet 7 likes
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        15. Patrick McKenzie‏ @patio11 10 Jan 2018
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          I generally talked to my accountants roughly quarterly when running a business, and before major moves like e.g. preparing to sell it. This is partly to let them give you early warning of things like "So Patrick you do realize that Japan is your 60% equity cofuonder right?"

          2 replies 1 retweet 8 likes
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        16. Patrick McKenzie‏ @patio11 10 Jan 2018
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          (I, uh, did not, but I'm really glad I found that out prior to spending 60% of the proceeds of the sale on e.g. a downpayment on a house.)

          1 reply 0 retweets 7 likes
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        17. Patrick McKenzie‏ @patio11 10 Jan 2018
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          Another reason is to get the help of a money-savvy professional who is outside the day-to-day of the business, to sanity check things for you. My accountants consistently picked up on e.g. impending cashflow issues or general health-of-business things when my head was in weeds.

          1 reply 1 retweet 8 likes
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        18. Patrick McKenzie‏ @patio11 10 Jan 2018
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          There's a complicated decision tree of how long to keep financial records, but explaining it would be accounting advice. "You should have a Dropbox account" is probably not accounting advice. I have never, ever, ever said "Man I am glad I threw away that business record."

          3 replies 1 retweet 17 likes
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        19. Patrick McKenzie‏ @patio11 10 Jan 2018
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          For really boring reasons, I had to show the State of Missouri (n.b. last set foot in it in 2004) a piece of paper issued in 2004... in 2016. Which I was trivially able to do because hard disk space is cheap and Dropbox / Tarsnap work very, very well.

          1 reply 1 retweet 13 likes
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        20. Patrick McKenzie‏ @patio11 10 Jan 2018
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          A surprisingly useful thing that I've done is wrote a one-pager "What happened this year" for each line of business, for consumption by the accountants. (In my case, heavily sourced from my public end of year review blog posts.) These get more valuable each passing year.

          2 replies 2 retweets 11 likes
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        21. Patrick McKenzie‏ @patio11 10 Jan 2018
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          "What should I do if I get audited?" You email your accountant and say "Hey a low-probability routine event has happened. What should I do about this?"

          1 reply 1 retweet 7 likes
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        22. Patrick McKenzie‏ @patio11 10 Jan 2018
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          I was audited by the State of Hawaii one year, because one of my companies had registered to file a bid with one of their agencies, and then they didn't get a business privilege tax return from us the next year. Responding to the audit took 45 minutes.

          1 reply 0 retweets 5 likes
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        23. Patrick McKenzie‏ @patio11 10 Jan 2018
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          General flavor of the interaction: "How much revenue did you have in Hawaii last year?" *SQL query* $180. "Wait, what. OK, you're done."

          1 reply 0 retweets 8 likes
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        24. Patrick McKenzie‏ @patio11 10 Jan 2018
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          In general, exuding professionalism will make many, many interactions with government (and other bureaucracies) go better for you. You want to be polite, compliant, and armed-to-the-teeth with well-organized records. And, again, this is why you pay your professional advisors.

          1 reply 2 retweets 12 likes
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        25. Patrick McKenzie‏ @patio11 10 Jan 2018
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          Accountants generate immediate ROI at any scale of business larger than a bake sale. My Japanese accountants, for example, caught that I had filed an exemption from consumption tax because all of my sales were exports of software. That was not an optimal filing.

          1 reply 1 retweet 10 likes
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        26. Patrick McKenzie‏ @patio11 10 Jan 2018
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          The optimal filing was to file a consumption tax return, saying that we had $0 of sales subject to consumption tax. And then claim back all the consumption tax our business had paid (on business expenses). Resulting in a tax refund of several times what I paid accountants.

          1 reply 0 retweets 10 likes
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        27. Patrick McKenzie‏ @patio11 10 Jan 2018
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          "Wait you can get radically different results from the same facts with just tiny changes in what you type on your return?" You sound very surprised, hypothetical person who probably has programmed before.

          1 reply 4 retweets 46 likes
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        28. Patrick McKenzie‏ @patio11 10 Jan 2018
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          If you read this far, you might want to check out our guide to business taxes: https://stripe.com/atlas/guides/business-taxes … If you're an Atlas company, we've got a quick survival guide for tax season here:https://stripe.com/atlas/guides/tax-season …

          2 replies 0 retweets 22 likes
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        29. End of conversation

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