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California Franchise Tax

Delaware Franchise Tax

Tax Return

1099 IRS Forms

 Tax Reporting for ISO and NQSO

R&D Tax Credits

What documents are needed to complete a startup’s tax return?

California Franchise Tax

Any business or that is doing business in California will get hit with the California Franchise Tax. So if you have employees, an office in California, or revenue in California, then you likely own this fee. When is the California Franchise Tax due? April 15th. And don’t expect any helpful postcards or notifications from the state of California! How much do is the California Franchise Tax for startups? If you are an early stage company operating at a loss, then it’s likely that the California Franchise Tax will only be about $800. There are a few variables that could make this a little higher, but for most startups (unprofitable companies, that is), you’ll pay $800. If you are profitable, make sure you do work with your CPA to calculate this fee correctly.

Delaware Franchise Tax

All Delaware incorporated companies have to pay an annual Delaware Franchise Tax – including startups. This expense has nothing to do with profitability, or even revenue – you have to file if you are incorporated in DE. When is the Delaware Franchise Tax due? March 1st. How much is Delaware’s Franchise Tax for startups? If you haven’t raised that much money, maybe half a million in seed financing, then you are likely to owe not more than $1,000. If you’ve raised $10 million in venture capital, then you likely own about $4,000. We help our early stage clients calculate their Delaware Franchise Tax, so if your CPA isn’t helping your startup with this then you should consider getting a CPA who is used to working with funded companies.

Tax Return

How much should a startup expect to pay for a tax return? After analyzing thousands of startup tax returns across many industries, Aconter Consulting developed a calculator to estimate startup tax return costs. You can find it on our website, and we invite you to visit the site and try it out. As a benchmark, a straightforward Series A tech company can expect to spend around $2,000 for their annual return. However, your cost may vary. Startup tax return costs are generally based on four factors, which we cover below. First, are you a seed, Series A, or Series B company? Your stage of fundraising has a direct impact on the return cost. Second, what industry are you in? A marketplace, a SASS, and a Fin-tech company can expect different tax return costs. For example, a Fin-tech or marketplace can be more expensive than just say a plain vanilla SASS or tech company. Third, where do you have payroll? Rent? Sales? The answers to these questions will determine where you have “nexus,” and the concept of a nexus is important because it determines which state or states you will need to file a tax return in. The more states, the more costly. Last, what is your volume and complexity? Do you have a lot of transactions or just a few? Are you complex with several international components or do you have a parent or subsidiary companies? The answers to these questions determine the workload required, and the price will go up a bit as volume and complexity increase.

1099 IRS Forms

1099s are an IRS form due each year by January 31st. Who your startup needs to give this tax form to depends on how much you’ve paid your cash-basis contractors during the previous year, and what type of contractor they are. Specifically, anyone who is not a corporation and was paid over $600 in aggregate will need to get a 1099. So LLCs and sole proprietors (often contractors like marketing contractors, some lawyers, and landlords), paid over $600 during the previous year, will require a 1099. If you are unsure what type of contractor you have been working with, have your startups send them a W-9 to complete. Remember, 1099s are due by January 31st, and your startup must provide one to any non-corporation you paid over $600 in the previous year.

Tax Reporting for ISO and NQSO

In December and January of each year, startups often start to wonder what they should be doing with all of those employees and contractors to which they’ve given incentive stock options and non-qualified stock options (“ISO” and “NQSO”). There is a very important deadline for companies that have granted ISO’s or NQSO’s. The ISO and NQSO forms are due by January 31. Businesses only have a short window after the end of the previous year to make sure that you have the form for your employees and your contractors who have received this type of stock incentive. Then, you need to know the difference between the two types of stock options—incentive stock options and non-qualified stock options. Incentive stock options (ISO’s): Your startup can only give ISO’s to employees! And if you have, you’ll need to fill out Form 3921. Your CPA can complete the form for you, or if you have a special subscription on Carta or Capshare, they can assist as well. Non-qualified stock options (NQSO’s): NQSO’s can be given to either employees or contractors. For employees, you will want to adjust box 12 on their W-2 Form, and provide it to them by January 31st. You’ll. need to work with your payroll provider, perhaps Gusto or TriNet, to make sure the W-2 adjustment is done. For contractors, you’ll need to file Form 1099 Miscellaneous. That is tax reporting for ISO’s and NQSO’s! Again, for ISO’s must have a Form 3921 filed, and for NQSO’s you want to adjust employee’s W-2 for and file Form 1099 Miscellaneous for contractors.

What documents are needed to complete a tax return?

You will need the following documents in order for our accounting team to complete your return:

• EIN Letter from the IRS (this is the Employer Identification Number letter that the IRS created for you when you requested an EIN for your company.)
• Vital Business Statistics
• Business Address
• Shareholder SSN/Address info
• Prior Year Tax Returns (Federal and States)
• Local Tax Returns (if any)
• Financials
• Full year Balance Sheet
• Profit & Loss Statement
• General Ledger
• Capitalization Table

Our web application makes it easy for you to share these files with us; simply login and upload the documents as you go through our tax software onboarding flow.

How much money can you save with the R&D tax credit?

We recommend a full study to determine the actual amount that your startup will save, but here is the rough math that you can do to estimate your potential savings. Multiply your qualified R&D costs by 10%. The maximum savings possible per year is $250,000 – so if you have $2.5 million in qualifying R&D expenses you can save up to a quarter of a million dollars in payroll taxes.

What is an R&D tax credit and what does it mean ?

New tax laws now allow pre-revenue startups and unprofitable startups to save money on payroll taxes with R&D tax credits. That means you can cut your startup’s burn with an R&D tax credit study! How do you get these tax credits and cut your burn? We recommend that you do an R&D tax credit study with Kruze. We are a specialized CPA that only works with funded startups. Our clients are collectively saving almost $5 millions this year in payroll taxes – that’s a lot of burns saved.