For early-stage startups, understanding and managing taxes is crucial. While it may feel like a chore, neglecting basic compliance can lead to penalties, hurt investor confidence, and complicate future fundraising rounds. Even if you’re not generating profits yet, paying attention to tax requirements now will help you safeguard your startup’s financial health and credibility.

Different legal entity types have different tax requirements. This post focuses on venture-backed startups structured as C Corporations, typically registered in states like Delaware. Keep in mind that other entity types such as LLCs or S Corporations follow different processes and deadlines. If you’re unsure which category applies to you, it’s best to consult a tax professional right away.

Key 2025 Corporate Tax Deadlines

• Corporate Income Tax Filing Deadline: For most calendar-year C Corps, the federal tax return (Form 1120) is due on April 15, 2025.
• Extensions: If you need more time to finalize your return, you can file Form 7004 by April 15, 2025 to get a 6-month extension, pushing your deadline to October 15, 2025. Just remember that this only extends the time to file, not the time to pay any tax due.
• Fiscal-Year Companies: If your fiscal year doesn’t match the calendar year, your federal return is generally due by the 15th day of the 4th month after your fiscal year ends (with different extension deadlines as appropriate).

Staying on top of these deadlines is one of the easiest ways to keep your startup free of unnecessary penalties—and it’s a good look for investors and your board.

What Types of Taxes Does My Startup Need to Consider?

When you’re a growing startup, it’s easy to lose track of all the different tax obligations you may owe. Below are the main categories you should know about:

a) Corporate Income Tax

Your C Corporation will owe federal income tax if it generates taxable profits. Some states also impose their own corporate income taxes, which vary widely in rates and calculations. Even if you end up with no tax liability because of losses, you’ll likely need to file a return every year—federal, and in each state where you have a filing requirement. Accurate and timely filing helps maintain clean financial statements, ensures you record net operating losses properly, and keeps you in good standing.

b) Payroll Taxes (and 1099s)

Payroll taxes include federal and state income tax withholdings, Social Security, Medicare (FICA), and any state-specific payroll obligations (unemployment insurance, for example). If you have employees, these taxes must be withheld and remitted on a periodic basis—often monthly or semi-weekly, depending on your payroll size.

• Tapping Into Software Services
  Tools such as Gusto, Justworks, and Rippling can automate payroll tax calculations, filings, and payments. They also help with generating and issuing 1099-NEC forms for contractors by the January deadline (generally January 31 each year). If you work with contractors outside of your HR system, tools like Track1099 and Tax1099 can help manage compliance.
• Why Contractors Matter
  If you pay contractors or freelancers, you must typically issue 1099-NECs for the prior year by late January. Missing these deadlines can lead to penalty notices from the IRS, so be sure to check your records every December to identify who needs a 1099.

c) Franchise Tax & Annual Reports

Many states, notably Delaware, require corporations to file annual franchise tax reports and pay a fee (or tax) to remain in good standing, even if they do not conduct in-state business.

• Delaware Example
  If you’re incorporated in Delaware (a common choice for venture-backed startups), you must file an annual report and pay the franchise tax by March 1 each year. The tax calculation can differ depending on your company’s authorized shares and other factors, but plan on a minimum few hundred dollars.
• Staying in Good Standing
  Failure to file or pay on time can lead to penalties—and, in extreme cases, jeopardize your corporate status. For a venture-backed startup, losing good standing in Delaware could cause major headaches during a fundraising or acquisition.

d) Sales Tax

If you sell tangible products or certain taxable services, you may have to collect and remit sales tax in states where you have nexus—a significant connection, such as employees, inventory, or surpassing an economic threshold of sales.

• Tools for Multi-State Compliance
  Software like TaxJar helps automate the calculation, filing, and remittance of sales tax across multiple jurisdictions. This is particularly helpful if your product or service is sold online and you’re suddenly shipping to customers in various states.
• Economic Nexus
  Many states have “economic nexus” rules that require out-of-state businesses to collect and remit sales tax once they exceed a certain level of in-state sales (often $100,000 or $500,000). Don’t assume you’re exempt just because you have no physical office in a given state.

What Information Do I Need to File Taxes for my Startup?

Before sending everything off to your tax preparer (or diving into a do-it-yourself software), organize these items:

1. Prior Year Tax Returns
   Having last year’s federal and state returns on hand helps your CPA track your carryover items (like net operating losses or tax credits) and see how you handled tricky situations in the past.
2. Completed or Reviewed Financial Statements
   Accurate Income Statements, Balance Sheets, and Statements of Cash Flows give a snapshot of your company’s financial performance and health. This helps your tax preparer spot potential deductions and ensures your tax returns align with the books you’re showing investors.
3. ‍Organized Expense Documentation
   Documenting your operating costs—everything from software subscriptions to travel—makes it easier to claim legitimate business deductions. Accounting software like QuickBooks help simplify expense categorization and record keeping, saving time and reducing errors.
4. Cap Table & Equity Records
   Many startups issue stock or stock options throughout the year, especially after fundraising rounds. Be sure to track these transactions (with platforms like Carta or Pulley) and share these records with your CPA so that any taxable events are identified and properly accounted for.

Which States do I Need to File Taxes in?

One of the biggest areas of confusion for growing startups is multi-state filing obligations. You might owe corporate income tax, franchise tax, or at least need to file informational returns in multiple states depending on factors like revenue, registration, or employees.

• Revenue Thresholds
  Some states only require you to file a corporate income tax return once your in-state sales exceed a certain threshold. It could be as low as a few hundred thousand dollars or as high as a million, depending on the jurisdiction.
• Registration-Based Obligations
  Registering to do business in a state—say, to open an office or to meet a client’s requirement—often triggers the need for an annual franchise tax return (or a minimum fee) even if your revenues are minimal.
• ‍Employee/Contractor Nexus
  Having remote employees or contractors in different states can create tax obligations. For instance, if you hire a full-time developer who lives in State X, you may have to file corporate tax returns there, or at least register and withhold payroll taxes in that state.
• Action Item
  Discuss your company’s structure with your tax advisor or CFO to map out any multi-state filing requirements. Specialized “nexus tools” can also help you figure out where you owe taxes, but professional guidance is generally your best bet.

Why Do I Need To File Taxes if my Startup is Unprofitable?

For many early-stage startups, the biggest question is: Why should we file if we have zero taxable income? The reality is, filing can save you headaches (and money) down the road.

1. Avoiding Penalties and Interest
   Even if you don’t owe corporate income tax, skipping a required return can trigger late-filing penalties. Over time, those fees can accumulate and damage your standing with tax authorities.
2. Investor and Board Expectations
   Investors pay attention to whether a company is on top of its administrative and financial responsibilities. Filing taxes—even at a loss—helps show that you’re organized and trustworthy. This is especially critical during due diligence for a fundraising round or acquisition.
3. Future Tax Attributes
   If you have operating losses now, filing on time ensures you properly record Net Operating Losses (NOLs). These can offset future profits, potentially saving you thousands (or millions) in taxes down the line. Missing returns might jeopardize those NOLs.
4. R&D Tax Credits
   If you are reading this, you are likely a tech founder with R&D expenses that qualify for credits or a refund. This is a big topic that we cover here and will touch on in the next section.

What Do I Need to Know about R&D Tax Credits?

One of the most founder-friendly incentives is the R&D (Research & Development) tax credit, designed to encourage innovative companies to invest in research and product development.

• Eligibility and Benefits
  If your startup is creating a new product, improving technology, or engaging in experimental processes, there’s a good chance your expenses qualify for the R&D credit. This can lead to a direct reduction of your tax bill if you’re profitable, or even apply to payroll tax in certain cases if you’re not yet profitable.
• Filing Integration
  Typically, you’ll claim the R&D credit via Form 6765 alongside your corporate tax return. Proper documentation is crucial—be ready to detail what projects you worked on, how they meet the IRS’s research criteria, and the wages or materials tied to those projects.
• ‍Payroll Tax Offset
  If you have fewer than five years of receipts and less than $5 million in annual revenue, you may qualify to apply the R&D credit against payroll taxes. This can provide near-term cash relief for pre-revenue or early-revenue startups.

Find about more about R&D Tax Credits here.

Practical Steps and Resources To Guide You When Preparing to File Taxes

Now that you have a high-level sense of your obligations, here’s a quick guide to staying on top of everything:

• ‍Immediately:‍
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  • Gather last year’s return and financial statements to give to your CPA.
  • Begin evaluating where you have potential state nexus (employees, revenue, or registrations out of state).‍
• Within 30 Days:‍
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  • Finalize your annual financials, double-check that 1099s have been issued properly, and confirm your readiness for any franchise tax or annual reports (especially for states like Delaware).‍
• Prior to April 15, 2025:
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  • File your federal return or get a 6-month extension using Form 7004 if you need more time.
  • Make sure any state returns are filed or extended if necessary. Don’t forget to pay estimated or final taxes due to avoid penalties.‍
• Ongoing:
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  • Track R&D expenditures, maintain proper documentation, and forecast whether you’ll qualify for the R&D payroll tax offset.
  • Keep good records of new hires or contractors in other states, and keep an eye on state nexus thresholds.
  • Ideally, hold periodic check-ins with a tax advisor or fractional CFO to ensure you’re not missing any changes in tax law or missing out on credits.

Software and services to consider:

• Payroll & 1099: Gusto, Justworks, Rippling, Tax1099, Track1099
• Sales Tax Compliance: TaxJar, Mosey
• Accounting: QuickBooks, Puzzle, Xero
• Cap Table Management: Carta, Pulley

Professional Advisors:

If you don’t have in-house tax or finance expertise, consider hiring an external CPA who specializes in startups. Alternatively, a fractional CFO can help with strategic planning and day-to-day financial operations without requiring a full-time hire.

At Afino, we work closely with early-stage and growth-stage startups to provide tailored tax and financial strategy solutions. Whether you need fractional CFO services or a more specialized finance partner, we’re here to support your team’s goals. And don't forget to ask us about our offer to handle the founders' personal taxes for free!