How do I show losses made in a startup business in an income tax return?
How to file a startup tax return for your venture-backed Delaware C-Corp:
Don’t go it alone: Filling out tax returns is a bit like a driving a rocket ship; you have to know which levers to pull and buttons to push at the right time. And while tax software exists, you need to work with a pro to make it all work. Just like you can’t purely rely on WebMD to self-diagnose. With your financial health on the line, that’s why CPA’s are licensed and regulated. (Fun fact: the CPA exam is widely considered to be the most difficult professional exam.
Hire a startup tax CPA: not all CPAs are going to be able to help you file a tax return. Just like doctors, CPAs have their niches of expertise: you won’t want to see a podiatrist if you need a pediatrician :) The CPAs at Kruzedo nothing but startup tax returns.
Leverage technology: Make sure that your startup CPA streamlines the process with Quickbooks, Expensify, Gusto, Box, and DocuSign. There’s no need for shoeboxes and paper anymore. Your startup CPA should be as modern as you are.
Mind your domestic presence: recent tax changes have changed the nexus game (which states you need to file in). More info on that here and here.
Mind your international presence: if your startup had $0 revenue and expenses but had an international subsidiary - $0 revenue and expenses - and you don’t file a 5471 with your 1120… You could get hit with a $10,000+ penalty!!
Secure an R&D Tax Credit: its $250,000 back in your pocket right now, this year. Not a gimmick. But you do need to file on time.
Bank your NOLs (Net Operating Losses): even if you’re operating at a loss, you’ll want to track your losses because a) you can use those losses later to offset your taxable income and b) your acquiring company can use those losses to offset their taxable income.