Tax filing checklist for early-stage startups (Delaware C Corporation) with links
Taxes and accounting is a shitty but necessary part building a startup. While accounting seems to be covered well (a lot of tools, startup-friendly accountings firms like Pilot and inDinero), taxes still suck.
Why this list
We incorporated Humbot in February 2017 and had no employees and only minimal revenue the whole year. When I started looking for a tax firm, I quickly realized that it is going to be a $1–2k cost. I thought that this couldn’t be that hard and started googling for an overview of taxes I need to file. Of course, I didn’t find anything. So I had to compile my list by visiting dozens of government pages (which usually haven’t been updated since the late 90s UX-wise).
To spare you the pain, here is a checklist for tax filing:
Tax filing checklist for early-stage tech startups (Delaware C Corporation)
Who is this list for?
- Early-stage software startups that have few employees and revenue
- Registered as a Delaware C Corporation, doing business in San Francisco, California
- Your accounting is done and up to date for the year.
Forms you need to file *for sure*
- State Tax (Form 100)
- Federal Tax (Form 1120)
- Delaware Franchise Tax
Forms you need to file *maybe*
- City Tax (=Sales Tax, depending on your product. E.g., services are not taxed)
- State Tax Estimate (Form 100-ES, if it’s *not* your first filing)
- Wage and Tax statement (Form W-2, if you have started payroll)
- Annual Employee tax report (Form 940, if you have started a payroll)
- Quarterly employee tax report (Form 941, if you have started a payroll)
- Contractor report (Form 1099-MISC, if you have contractors that earned more than $600 in this year. If you have unusual type of contractors, you might need to fill to out another variant of this form. See here)
- US Contractor information filing (Form W-9, send this to your contractor, keep a copy, don’t need to send this in)
- Non-US Contractor information filing (Form W-8BEN, send this to your contractor, keep a copy, don’t need to send this in)
- Non-US Contractor information filing (non-product transaction)(Form W-8BEN-E, send this to your contractor, keep a copy, don’t need to send this in)
- Summary of and Transmittal of Information Returns (Form 1096, if you *did not* file Form 1099 electronically)
- Foreign Shareholder Qualification (Form 5472, if you have >25% shareholders that are non-US citizens)
Just make sure to fill them in correctly and send them in before the deadlines, and you’re good to go. Most of them need to be filed within the first quarter of the following year, but there are exceptions (e.g., 100-ES and 940)
If you are interested in more info about the individual filings, here is some additional info:
City, State, and Federal taxes
Those are taxes on the income you made. Even if you didn’t generate any revenues, there is a minimum tax of $800 (waived in the first year). Pretty straightforward. Make sure to predict your income as realistically as possible. If there are vast differences between what you estimated (with Form 100-ES) and what you actually file at the end of the year, you will be fined. But no worries, you can update your estimates as you go throughout the year.
Delaware tax
Since we’re looking at a case of a company that is registered in Delaware (like most VC-backed tech startups in Silicon Valley are or should be), we have to pay a lump sum tax to Delaware.
Employees
If you had no employees and didn’t create payroll yet (this is important), you don’t have to fill out this form. If you have employees, make sure to get accounting and payroll done cleanly.
Contractors
Contractors are all companies and persons that are not employed by your startup but provide you with services. Make sure to send your contractors the W-9, W-8BEN or W-8BEN-E forms. Even though you don’t have to send those in, it’s necessary to keep them on file. This is important because you are withholding tax (income tax for your contractors) that you pay directly to the government. And they might audit the forms to make sure it matches up. You only need to fill this form out if you have minimum one contractor that you have paid more than $600 in the relevant fiscal year.
If I’ve missed something or you want to add/correct something, just let me know. ✌🏼✌🏼✌🏼
Obviously, this does not constitute legal advice. But this is America, and I’d better write it down here.
