Dealing with Taxes

Most startups end up incorporating in the State of Delaware. The head office could be in another state. So on an annual basis company needs to file and pay Annual Franchise Tax for Delaware which is based on the Authorized Shares of the company or the Assumed Par Value Capital Method. Also annually federal and state taxes need to be filed. End of the year, employee W2’s and 1095s, consultant 1099s and employee/ex employee 3921s are also to be completed and sent out. Once a year company also has to file their county property taxes. Quarterly sales tax filings need to be done and quarterly payroll tax filings need to be done as well.

Whether you are profitable or not, if you are incorporated you should be filing income tax returns- federal, in the state of incorporation and in the state where you have nexus (usually meaning where you have employees). Even though it is time consuming, filing taxes is helpful in the future. As a startup that is loss making, you could use these losses in the future. Tax rules allow you to offset the profits by these losses. The losses can be carried forward for 20 years. So if you become profitable in year 15, you can offset the profit with the loss for the first year onward, thereby reducing the tax liability you may have. The tax losses for a startup could also be useful for negotiations at a time of acquisition. A big profit making company could use the losses to offset their profits and lower their tax obligation.