Startup Taxes

Our Tax Leaders

Leading a team of pros that completed 275 startup returns in 2017

Vanessa Kruze, Kruze Consulting Core Team

Vanessa Kruze, CPA

Founder & CEO

Vanessa Kruze, CPA, founded Kruze Consulting in 2012. Vanessa has helped over 500+ startups, prepared 1000+ startup tax returns, and oversees ~1 startup acquisition every month. Prior to founding Kruze Consulting, Kruze worked at Deloitte Tax and as the Controller of a startup with more than 120 employees.

LaRena Gibson

Federal Tax Manager

LaRena Gibson is an expert in tax, joining Kruze Consulting as their Federal Tax Manager. LaRena is an IRS Enrolled Agent, Deloitte Alum, Intuit Alum and Former SFSU Adjunct Instructor. She is an MBA graduate of Mills College.

Startup Tax Return Cost Calculator

Our online tax return cost calculator estimates the cost of tax preparation – try it now for free!

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Disclaimer

The cost of startup's tax return could vary based on different factors including: transaction volume, industry, revenue, or others. Please contact us for a free consultation

Startup Taxes Key Terms

California Franchise Tax
Delaware Franchise Tax
Startup 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?
What is an R&D tax credit and what does it mean for startups?
How much money can you save with the R&D tax credit?
Do Startup Investors Get K-1 Tax Documents
Best Time to Send a W9 if a Vendor Needs a 1099?

California Franchise Tax

Any business or startup 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.

Startup Tax Return

How much should a startup expect to pay for a tax return? After analyzing thousands of startup tax returns across many industries, Kruze 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.

R&D Tax Credits

There have been major changes in how R&D tax credits work in the United States recently, and now many unprofitable startups are eligible to actually save money on their payroll taxes by taking advantage of these changes! The maximum amount an unprofitable company can save is $250,000 per year in payroll taxes - so that means that an unprofitable startup could theoretically save up to a quarter of a million dollars next year! It’s a big deal. Kruze Consulting has conducted R&D tax credit studies that are going to save our clients over $3 million in the coming year. Talk to our experts to see if your startup can cut its burn with these credits, and you can learn more about R&D tax credits for startups here.

What documents are needed to complete a startup’s 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.

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

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

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.

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.

Do Startup Investors Get K-1 Tax Documents

Since most startups are Delaware C-Corps, the answer is NO, the company does not provide K-1s to the investors. More detail: K-1's are the tax documents that reflect gains or losses from entities like LLCs, S-Corps, or partnerships. Those entities are nicknamed “pass-through entities” because they pass the gain or loss onto their investors and owners. So if you're an investor in a local coffee shop, that's probably structured as an LLC and they made some money this year or last year, you will get a K-1 because of the LLC corporate structure. And it's a pass-through entity and you will have to report the earnings from the K-1 on your tax returns. Now, the good news is most startups are Delaware C-Corps. They are incorporated in Delaware and they do business in California, New York, Texas, Massachusetts, etc. But they're usually incorporated in Delaware because like Business Case Law is really well known in Delaware and Delaware C-Corps hold the gain or loss at the corporation level. They do not pass on that gain annually to their investors. Now you do experience again in a Delaware C-Corp when you have a realization, meaning the company was sold so the shares were sold or maybe you do a secondary transaction sell some of your shares to another investor, or you get a dividend or if the company goes out of business you get a tax write-off for that. So that's when these kinda things come into play for the owners or investors of a Delaware C-Corp but you are not gonna give those investors in a Delaware C-Corp a K-1 because again, the gain or loss is held at the entity level.

Best Time to Send a W9 if a Vendor Needs a 1099?

First, a W9 is a taxpayer information form that is on the IRS website. Technically, you should send this to all of your vendors. However, not all may need a W9. You really just need to worry about the vendors that are independent contractors, sole member LLCs, partnerships, etc. You don't have to worry about S corps or C corps.

So when is the best time of the year to send out the W9 so that you can determine whether the vendor gets a 1099 or not?

I recommend sending the W9 out at two times:

Right when you start working with the vendor and you are about to pay them.

Vendors are more responsive if their check is being held up for tax compliance.
A good practice is to bundle it with any contract you sign, especially with an Independent Contractor who you are almost positive needs a 1099.

Often vendors are not responsive, or you want to batch W9’s for efficiency. There is a tradeoff between stopping what you are doing every time you start working with a new vendor to send a W9.

January 1-10

This is a good practice to send out W9’s to those for whom you do not have an up-to-date W9.
This allows you to batch the process and achieve some operational scale.

About Us

A CPA Firm Specialized in Startup Accounting & Tax

Startups are our niche and our passion. Our clients have raised over half a billion in venture capital financing in the past 12 months. We are one of only a few accounting firms that specialize in funded startups - we only offer financial and tax services to fast-growing startups in the Seed, Series A, Series B, and Series C stages.

A Startup Tax
Expert

Nobody knows startup taxes better than our CPAs. Each year, we help hundreds of funded startups prepare federal and state taxes. Our firm has executed almost $5 million in startup R&D tax credits last year - that means we help our startup clients each save up to $250,000 in payroll taxes each year. Our founder is a Deloitte Tax alumni.

TRUSTED BY TOP VC’S FOR THEIR STARTUPS’ TAXES

Top angel investors and VCs refer Kruze because they trust us to give the right tax advice. Our clients are portfolio companies of top technology and Silicon Valley investors, including Y-Combinator, Kleiner, Sequoia, Khsola, Launch, Techstars and more. With us, your taxes are in order when it’s time to raise another round of venture financing.

A LEADER IN CLOUD ACCOUNTING SOFTWARE

Our practice is built on best of breed cloud accounting software like QuickBooks, Xero, Netsuite, Gusto, Zenefits, Expensify, Avalara, Brex and Bill.com. Technology makes us more efficient, saving our clients money and letting us offer higher value services like FP&A modeling, 409A valuation, and venture debt consulting. Startups deserve to work with CPAs using modern software.

BE READY FOR YOUR STARTUP’S
NEXT VENTURE CAPITAL ROUND

We know how to de-risk your startup’s next venture capital round. When we do your startup’s tax returns, we make sure you are ready to fly through your next VC’s tax due diligence checklist. And when you use us as your bookkeeper, we maintain a due diligence folder so you can quickly respond to your next investor’s accounting questions.

ACCOUNTING, FINANCE, TAXES, & PAYROLL - ALL FOR STARTUPS

Startup CFO services, startup accounting, and bookkeeping services, startup annual taxes, expense reports, payroll, 409a, venture and venture debt consulting, FP&A, benefits: we’ve got your startup covered. And because we are leaders in cloud accounting software, we can deliver it all to startups at an affordable cost. Take your startup’s finances to the next level with Kruze!

Estimate What Your Startup’s Tax Return Would Cost

Kruze Consulting is the perfect Accounting, Finance and Tax partner for Los Angeles Startups. Kruze delivers exceptional monthly reporting and financial projections. When we need help with benefits or payroll, Kruze solves our problems.

Brett O'Brien

As a startup, moving quickly is a top priority for us and we just needed to get our tax return done. After we uploaded our docs, we got our tax return in 3 days! E-filing was confirmed by Day 4. Super responsive and helpful!

Casey McKerchie

We tried using other CPAs to prep our startup tax return only to find that they weren't startup experts. Kruze knows R&D, SAFE Notes, SaaS, and venture debt and they gave us valuable advice. We have 100% confidence in their work.

Farhad Massoudi

Kruze does startup Tax Returns

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Almost $5 million in Startup Payroll Tax Savings from R&D Tax Credits

Our Tax Leaders

Vanessa Kruze, CPA

Founder & CEO

LaRena Gibson

Federal Tax Manager

Startup Tax Return Cost Calculator

Our online tax return cost calculator estimates the cost of tax preparation – try it now for free!

Employee Info

Logistics

Disclaimer

Frequently asked questions

Startup Taxes Key Terms

California Franchise Tax

Delaware Franchise Tax

Startup 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?

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

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

Do Startup Investors Get K-1 Tax Documents

Best Time to Send a W9 if a Vendor Needs a 1099?

Kruze Startup Tax Returns

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