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Taxes

Which taxes apply to me?

The best way to answer this question is by identifying if you have nexus. Nexus is the contact between a taxpayer and a state before the state has jurisdiction to tax the taxpayer. It’s important to identify if you have nexus in any given state because you will owe taxes there if you do.

  • Do remote workers trigger nexus?
    • Yes - An employee who works in any given state has a nexus because they have established a physical presence for your company.
  • Do sales trigger nexus?
    • Yes - While this is state-by-state dependent, there are various thresholds in each state that trigger nexus.
    • Sales Tax Laws by State

How do I file taxes?

File your taxes through tax returns. Tax returns are an annual process that allows taxpayers to calculate their tax liability, schedule tax payments, or request refunds for the overpayment of taxes.

  • When does my company need to file a tax return?
    • Every stage startup, even seed stages, as well as any business that has received an EIN letter from the U.S. government, must file a tax return.
    • If your EIN letter arrived in December of the previous year, you still need to file a return for the year.
  • My startup is unprofitable, do I still need to file a tax return?
    • Yes - if you have any business activity whatsoever, the IRS expects you to file, no matter how early the stage you are or what financial position your business is in.
    • Even if you lost money in the previous year, or had $0 in profits, your startup should still file both federal and state returns.
    • You will have the opportunity to benefit from your losses down the line to offset future taxes once you are profitable.
  • When are tax returns due?
    • Tax returns are due on tax day of each year
    • You can file a 6 month extension with the IRS - here
    • Reference the IRS website for all relevant tax dates
  • How do I file my corporate tax return?

Can I benefit from R&D tax credits?

Organizations that invest in qualified research and development activities to incentivize innovation and growth may be eligible for a general business tax credit.

  • Do I qualify for the tax credit?
    • You do if your company:
      • Had gross receipts of $5 million or less for the tax year.
      • Had gross receipts for five years or less. The business must not have gross receipts for any tax year before the 5-tax-year period ending with the tax year they’re applying for.
      • Is not a tax-exempt organization under section 501, such as a charitable organization.
  • What Kind of Work Qualifies for the R&D Tax Credit?
    • There are 4 tests you must pass to qualify:
      • The Section 174 Test
        • The research costs must be related to the startup’s business.
        • The startup has incurred research and development costs in an “experimental or laboratory sense,” – the purpose of research activities was to remove uncertainties regarding product improvement or development.
      • The Discovering Technological Information Test
        • Must prove that the research relied on the “principles of the physical or biological sciences, engineering, or computer science.” Qualified research must remove uncertainty, as explained in the section 174 test.
      • The Business Component Test
        • Any information the startup discovers during research must be used for the development of a new business component or the improvement of an existing one.
        • Business components are described as “any product, process, computer software, technique, formula, or invention, which is to be held for sale, lease, license, or used in a trade or business of the taxpayer.”
      • The Process of Experimentation Test
        • This test requires startups to:
          • Identify the uncertainty that’s related to the development of a business component.
          • Identify at least one alternative to remove the uncertainty.
          • Identify and carry out an evaluation process of the alternatives.
  • What can I use these tax credits for?
    • To offset your payroll tax liability
  • When do I need to claim R&D tax credits by?
    • Credits must be specified and elected by a qualified small business with its filed income tax return for the taxable year for which the election applies.
    • C Corps with a December fiscal year end should claim on or before April 15. C Corps with fiscal year ends other than December should claim on or before 4.5 months following the end of the tax year.
  • How do I claim R&D tax credits?
    • We suggest working with a tax accountant to ensure proper filing
    • Note: Tax preparers will take a portion of the credit received as payment for their services
    • Fondo
    • Integrated CPA
    • Kruze
    • Founder’s CPA

What taxes does my C-Corp business have to pay?

  • Federal Income Taxes - Tax imposed on income generated
    • Frequency: Annual tax return
  • Gross Receipts Tax and State Income Tax on Businesses
    • Most states have a state income tax for businesses; only a few states have no income tax.
    • Some states impose a gross receipts tax on businesses instead of, or in addition to, a state income tax.
    • Frequency: Varies by state
  • Sales Taxes - Consumption tax imposed by state or local governments on the sale of goods or services that consumers pay when making a purchase. The business is responsible for charging the consumer this tax and then the business must remit payment of the tax to each applicable state.
    • Frequency: Varies by state
    • You are responsible for charging your customers sales tax if you have nexus - certain business activities, including having a physical presence or reaching a certain sales threshold, may establish a nexus with the state (see above)
    • Avalara - Sales tax compliance tool
  • Property Taxes - Local tax on real property (i.e. if your company owns a building)
    • Frequency: Varies by state
  • Excise Taxes - Paid by businesses for certain types of use or consumption like fuels
    • Frequency: Federal - quarterly, State - monthly
  • Employment Taxes Paid on Employee Earnings - Businesses must withhold federal income taxes and FICA taxes from employees, and contribute an equal amount to FICA taxes
    • Frequency: Report the amounts owed and paid for these taxes each quarter, and make regular payments. Coordinate with your payroll provider or PEO to see which withholdings they take care of on your behalf.
      • Federal income tax - Withheld from employee pay
      • FICA taxes - Paid by both employers and employees
      • Federal Unemployment Taxes (FUTA) - Paid by employers
  • Dividend Tax on Corporate Shareholders - Income taxes on any income you receive from dividends
    • Frequency: Annual
  • Franchise Tax - Some states in the U.S. require businesses to pay a franchise tax for the right to exist as a legal entity in a certain state and do business there
    • Frequency: Annual
    • A startup is generally subject to a state’s franchise tax if the startup is incorporated in or conducting business in that state
    • Franchise tax varies state by state
    • Startups will want to do Assumed Par Value Capital Method for ~$400, instead of Authorized Shares Method which will be tens or hundreds of thousands
    • Click here for how you pay your DE Franchise Tax
    • Click here to calculate your DE Franchise Tax
  • 83(b) Election - Provision under the Internal Revenue Code (IRC) that gives an employee, or startup founder, the option to pay taxes on the total fair market value of restricted stock at the time of granting

Tax Deadline Calendars