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Startup Taxes | Startup Tax Provider

A Guide to Startup Tax Planning by a Leading Startup Tax Provider and CPA Firm

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Dave Lowe, CPA
Dave Lowe, CPA
VP of Tax Services

Does Your Startup Need to File a Tax Return? 

First, let’s address one of the biggest questions founders have: If my startup didn’t earn any revenue, of if my company lost money, do I still need to file a tax return? Yes! Any startup that received an Employee Identification Number (EIN) must file a tax return.

Kruze is a leading startup tax provider, serving hundreds of VC and seed funded startups. Our clients have collectively saved over one hundred million in taxes through our R&D tax credit work, and our clients have been acquired by leading public technology companies like Apple, Workday, Cisco and others - proving that our tax and compliance work is of the highest standard. 

The next most common question we get is, can a founder DIY their tax work. In general, the answer is no. Here are some reason you should rely on a professional tax preparer that understands startups:

  • Preparing and submitting returns is time-consuming. It’s not as simple as filling out a form and mailing it to the IRS, and your time is limited. 
  • R&D expenses may not be fully deductible. Congress has passed legislation that can make even unprofitable startups that conduct a lot of R&D owe taxes. 
  • Mistakes can be expensive. You don’t need any startup tax compliance issues. You could end up with fees and penalties. More importantly, these types of problems can affect due diligence, which could affect your funding or any acquisition. 
  • Deductions and credits are available, even for unprofitable startups. One big example is the R&D tax credit. If you have employees and you’re doing qualified research and development, you may be able to reduce your payroll taxes! But you’ll need help to properly document your research activities.
  • Exits have heavy tax diligence. Kruze manages the tax due diligence for our clients. When major public technology companies purchase startups, tax diligence is no joke, and the acquiring company will require the founder to attest to pages and pages of tax and compliance standards - that’s where Kruze really shines. Our team of CPAs and IRS Enrolled Agents constitutes one of the largest groups of startup-focused tax providers on the planet. 
  • Businesses owe different taxes than people do. Depending on your startup’s structure and where you do business or have employees, you may have tax obligations in multiple states, including franchise taxes, sales taxes, income taxes, and payroll taxes
Tax Type Applicability Filing Requirements Common Rates/Range Potential Deductions/Credits Additional Notes
Federal Income Tax Paid when profits are generated, but even unprofitable startups must file returns Annual with estimated quarterly payments. Varies based on corporate structure. Business expenses, office supplies and furniture, R&D credits, etc. Net Operating Losses (NOL) can offset future profits.
State Income Tax Paid when profits are generated in states where startups have tax nexus. Even unprofitable startups must file returns. Annual with estimated quarterly payments. Varies by state. Varies by state. Check for special startup initiatives.
Sales Tax Paid on sale of certain goods/services. Varies by state or locality. Based on local nexus requirements. Varies by state/locality. Generally, no deductions. Compliance is crucial in states where the company has tax nexus.
Payroll Tax Paid by all startups with employees. Quarterly and annual. Fixed percentage for Social Security and Medicare. Unemployment tax varies by state. R&D credits. Includes federal and state taxes.
Delaware Franchise Tax Paid by startups registered in Delaware. Annual. Based on the corporation’s value. N/A Important for corporations registered in Delaware.
State Franchise Tax Paid by startups that do business in certain states. Annual. Varies by state. N/A Important in franchise tax states where corporations do business.
Other Taxes See additional taxes. Varies. Varies. Varies. N/A

Now that you know why professional preparation is important for startups, you can use our online tax return cost calculator to estimate how much your startup’s tax return would cost. Next we’ll look at the steps founders should follow to make sure your preparation goes smoothly.

Startup Tax Return Cost Calculator

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


What are your startup’s tax deadlines?

The main tax deadline in 2024 for startups filing income tax returns for 2023 is April 15. However, Delaware C-corporations (which most startups are) have additional deadlines and important dates. Use our map below to find out your IRS and local filing schedule based on your startup’s location. You can download a PDF with all the dates for your location. If you’re headquartered somewhere else, check our C-corp tax schedule.


What tax forms does your startup need to file?

Below you’ll find a list of tax forms that Delaware C-corporations may need. Please note that if your startup isn’t a C-corp, the IRS requires different forms. You may not need all of these forms; a qualified tax preparer like Kruze can guide you through this process. You can download a PDF of this list.


Is your startup eligible for R&D tax credits?

The research and development (R&D) tax credit is a government-sponsored incentive that encourages businesses to engage in R&D activities within the US. Startups can offset up to $500,000 in expenses starting in 2023. The credit can even benefit startups that are losing money – if you’ve got employees on your payroll, your company can use the R&D credits to reduce the amount of payroll taxes you pay. This is a great way to cut your burn rate.

Calculate your potential credit

These changes reduce the immediate value of the credit for many startups, but it still has value to help you save on payroll taxes and reduce your burn rate. To find out how much your R&D tax credit could be, you can use our credit calculator.

The process for claiming the tax credit is complex. Your R&D expenses must be considered qualifying by the IRS, and in 2022 the IRS launched new documentation requirements that will need to be met when you file your return. Our guide to the R&D tax credit walks you through the requirements and provides more information on qualified R&D expenses, and how you will receive your refund under the new amortization rules. 

In addition to the federal credit, some states also offer R&D credits. Check our state tax credit map to determine if your startup may be eligible for additional incentives.


What documents will your accounting firm need to complete your startup’s tax returns?

To make filing your startup taxes as smooth as possible, you’ll need to know what documents you need. Ideally, you should be assembling this information throughout the year, so you aren’t scrambling to produce it at the last minute. Here’s a downloadable checklist to help you get started. You may not need all of this information, or other documentation may be required based on your company’s industry and financial situation.

Corporate Information

Financial Documents

Prior Year Returns

  • All prior year’s returns, both federal and state
  • Any depreciation claimed in earlier years 
  • Net Operating Losses (NOL) from earlier years 
  • Any correspondence to or from the IRS or state tax authority, including any adjustments made to prior returns that could affect later returns 
  • Prior year overpayments
  • Estimated tax payments
  • Extension payments


Startup tax planning for next year

One task that frequently slips under the radar at startups is tax planning. Overlooking this fundamental business requirement can have serious consequences! In fact, a recent change to the tax code’s Section 174 illustrates how important tax planning can be to startups. In 2022, Section 174 changed the way that taxes are calculated by creating new capitalization and amortization rules for research and development expenses. 

Let’s look at a simple example. Prior to 2022, if a startup had $1 million in revenue and $2 million in expenses, it wouldn’t pay income taxes that year. But now startups have to amortize R&D expenses over five years. So if $1.5 million of the startup’s expenses were categorized as R&D, then the startup can only deduct $300,000 each year for five years ($1.5 million/5 years). Now the startup has a positive income of $200,000 ($1 million in revenue - $500,000 in allowable expenses - $300,000 of amortized R&D) and has a tax liability where it didn’t before!

Startup tax planning is not just a matter of compliance, but a strategic move that can significantly impact your long-term success. Here’s why you should plan, and not just react:

  • Create financial stability. Startup tax planning isn’t merely about adhering to regulatory requirements. It involves strategies to optimize the financial structure of a startup. By proactively planning for startup taxes, you can properly allocate your company’s financial resources, preserving funds for essential business operations and creating a stable financial foundation for future growth.
  • Maximize cost efficiencies. Early-stage companies usually operate within limited financial constraints, making cost efficiency a top priority. Effective startup tax planning allows your startup to identify and leverage potential tax benefits, incentives, and deductions, and then channel these savings into essential areas like research and development, talent acquisition, and marketing.
  • Minimize financial risks and liabilities. Without a comprehensive tax planning strategy, your startup could face various financial risks and liabilities. Errors and compliance issues can result in severe penalties and legal consequences, draining funds and slowing business growth. 
  • Improve investor confidence. A well-structured tax plan can significantly enhance investor confidence. A transparent and efficient tax strategy demonstrates the startup’s commitment to financial prudence and accountability, which can help attract new funding opportunities.
  • Facilitate long-term growth. Sustainable growth is the ultimate goal for any startup. A comprehensive tax planning framework aligns with the long-term vision of the business, facilitating strategic decision-making. The size and timing of purchases, planning for expenses (like R&D expenses), credit and deduction opportunities, and more can be factored into your business tax projections to help you pay the least amount to the IRS, states and other municipalities.

How to Select the Best Tax Services for Your Startup

VC-backed companies have very different tax services needs than traditional small businesses. Because VC-backed startups often lose money, they need to be more focused on staying compliant, saving the founders time so they can focus on building the business, and maximizing tax credits that work for unprofitable startups - and ignoring those that are really only for companies that make money. Here’s how to identify the best tax services for your startup’s unique needs.

Understand Your Tax Preparation Needs

Assess Complexity: The first step in choosing a tax service is to assess the complexity of your startup’s financial landscape. This includes evaluating revenue streams, funding rounds, R&D activities, and multistate operations. Additionally, if your startup plans to raise later-stage VC funding or aims to be acquired by a major public company in the next 5 to 10 years, the complexity increases significantly. These goals require meticulous tax preparation and due diligence to ensure that your financial records withstand the scrutiny of potential investors and acquirers.

Identify Services Offered: Look for tax services that offer a comprehensive suite of solutions, including tax preparation, compliance checks, R&D tax credit claims, strategic tax planning, and due diligence preparation. The ability to provide a one-stop solution for all your tax needs, especially in preparing for critical financial events like fundraising and acquisition, is a hallmark of a great tax service provider.

Evaluate Expertise in Startup Taxation

Specialization: Opt for a tax service that specializes in working with startups. A firm with a deep understanding of the startup ecosystem, including the intricacies of VC funding rounds and the acquisition process, will be more adept at identifying tax-saving opportunities and navigating the specific challenges startups face during tax preparation.

Proven Track Record: Seek out tax services with a proven track record of success with startups, particularly those that have successfully navigated later-stage funding rounds or acquisitions. Testimonials, case studies, and referrals from other startups can provide valuable insights into a firm’s capabilities and effectiveness in managing complex tax preparation and planning.

Consider the Approach to Tax Preparation

Proactive Planning: The best tax services for startups adopt a proactive approach to tax preparation. This involves not just preparing and filing your taxes but also planning ahead to minimize your tax liabilities and maximize potential credits and deductions. This proactive planning is particularly important for startups eyeing significant financial milestones like VC funding or acquisition.

Transparency and Communication: Effective communication is key to a successful partnership with your tax service provider. They should be transparent about their processes, keep you informed at every stage of tax preparation, and be readily available to answer any questions you may have, especially regarding due diligence and financial planning for major business events.

Assess the Cost

Transparent Pricing: Transparency in pricing is critical when choosing tax services. Understand the fee structure upfront to avoid any surprises. A reputable tax service will provide clear pricing based on the complexity of your tax situation and the services you require, including those related to preparing for VC funding or acquisition.

Over $25 million per year in startup payroll tax savings from R&D Tax Credits

Startups need expert startup tax providers – Kruze helps seed and VC funded companies creating novel technology save payroll expenses by taking advantage of R&D Tax Credits. Kruze is an expert at tax credits for startups. If your startup CPA isn’t talking to you about R&D Tax Credits, then you may be missing out on up to $500,000 in payroll tax savings next year!


Our Tax Leader

Leading a team of pros that has completed over 1,000 startup tax returns!

Vanessa Kruze, Kruze Consulting Core Team

Vanessa Kruze, CPA

Founder & CEO

Vanessa Kruze, CPA, founded Kruze Consulting in 2012. Vanessa has helped over 800+ startups, prepared 1000+ startup tax returns, and oversees ~1 startup acquisition every month. She is generally considered one of the top tax accountants in Silicon Valley and represents funded companies in all major US tech hubs. Prior to founding Kruze Consulting, Kruze worked at Deloitte Tax and as the Controller of a startup with more than 120 employees.

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Startup Taxes Key Terms

Why Hire a Startup Tax Accountant Who is a CPA?

Choosing an experienced CPA firm to be your startup tax accountant is a solid idea for a number of reasons. Working with a CPA firm for your startup not only simplifies financial management but also offers the benefit of representation before the IRS, something only CPAs, attorneys, and enrolled agents are authorized to do.

Plus, with a full-service team of GAAP and tax accountants in-house, Kruze can handle your books, complex tax issues, and IRS representation, you save a lot of time. Many founders don’t realize how much coordination happens between startup tax accountants and the company’s bookkeeper, but keeping that all in the same firm saves the founder time. Plus, when it comes time to arrange due diligence for that next venture capital round - or a big M&A exit - you’ll only have a single accountant to call to coordinate the process. 

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?

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 SaaS, 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 SaaS 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.

1120 IRS Forms

Most folks only think about the annual Form 1120 Tax return, but there’s actually a ton of taxes and tax deadlines for Delaware C-Corps.

And Yes, even bootstrapped pre-revenue startups must pay taxes. You might not be subject to Income Taxes (which are based on profitability) but you will still be subject to a wide variety of other taxes which aren’t always connected to Revenue.

1120 IRS Forms

5471 IRS Forms

One tax requirement that’s complicated and hard to understand is for US citizens and residents who have ownership in a foriegn corporation. These people are required to file IRS Form 5471Information Return of US Persons with Respect to Certain Foreign Corporations.

5471 IRS Forms

5472 IRS Forms

More and more businesses are operating on a global level, even small businesses and startups. In recognition of that fact, the IRS requires US businesses that have foreign ownership, or foreign businesses that do a significant amount of business in the US to file Form 5472. The form discloses information about reportable transactions, and is submitted along with IRS Form 1120, your annual tax return. Form 5472 differs from Form 5471, which is used for US citizens that have ownership in foreign corporations.

5472 IRS Forms

6765 IRS Forms

Form 6765 is an IRS Form, under IRS tax code U.S. Code § 280C, that is the “Credit for Increasing Research Activities” - and informally known as the R&D Tax Credit Form.  This tax form can help startups save up to $250,000 on their payroll taxes; that amount doubles to up to $500,000 per year starting in the tax year 2023 thanks to the Inflation Reduction Act. The Research and Development tax credit basically rewards companies for conducting research and development activities within the United States. 

6765 IRS Forms

W-8 and FATCA IRS Forms

The Foreign Account Tax Compliance Act (FATCA) places significant tax filing requirements on startups with foreign assets, employees, and contractors, and that’s the reason for Form W-8. FATCA is an extremely complex piece of legislation that was designed to fight tax evasion by Americans with financial assets held outside the U.S. Enacted in 2010, FATCA requires all U.S. taxpayers, even those living abroad, to report foreign assets to the IRS if they exceed specific thresholds. In addition, foreign financial institutions (FFI) and non-financial foreign entities (NFFE) are required to report the assets of any American clients, or they’ll face a 30% withholding penalty on some payments from the U.S.

W-8 and FATCA IRS Forms

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. (If you want to go deep, read our stock options 101 for founders here.)

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

Many unprofitable startups are eligible to actually save money on their payroll taxes by taking advantage of R&D tax credits! The maximum amount an unprofitable company can save is $250,000 per year in payroll taxes, and that increase to $500,000 per year for the tax year 2023 - 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 over 1,000 R&D tax credit studies that have saved our clients over $40 million in burn. In the most recent tax year, our clients got a check or payroll tax reduction on average between $50,000 to $60,000! 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 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 over $25 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. Note that the Inflation Reduction Act of 2022 increased the maximum amount to $500,000 starting in the tax year 2023. Not looking into these credits is one of the top tax mistakes startups can make!

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.

Qualified Small Business Stock

Qualified Small Business Stock, or QSBS, is a tax benefit that can have substantial advantages to startup investors. Investors in companies that qualify can save up to $10M a year, or 10x their investment, in capital gains.

Basic QSBS requirements are:

  • The company needs to be a Delaware C-corp company.
  • It must have less than $50 million in net assets on a tax basis.
  • The business must be in a hard science or innovation space.
  • The stockholder must own the stock for at least 5 years.

There are some other nuances, so you need to consult with a qualified tax CPA for both the company and for the individual taxpayer.

Employee Retention Tax Credit for Recovery Startups

The ERC for Recovery Startups is a tax credit for companies founded after February 15, 2021 that can reduce payroll taxes by up to $100,000. This tax credit is a great tax incentive that startups should be using if they were recently founded. It was authorized under the American Rescue Plan Act of 2021, and is designed to help companies that were founded during the COVID crisis. If your startup tax accountant isn’t talking with you about this incentive, reach out to us ASAP!!

Dividend Tax Documentation

The process for distributing dividends to private company shareholders is fairly simple - if you understand the tax documentation process for dividends. When it comes to the correct process for the IRS, big points to remember include not forgetting to send 1099-DIVs to shareholders, and making sure you fill out the correct box on the form. Watch our video or read our in depth article on tax documentation for dividends.

Payroll Tax

Payroll taxes are imposed on employee wages and salaries, and is usually a percentage withheld by employers from employee pay or in some instances is paid solely by the employer. The tax is paid to the government on the employee’s behalf and is deducted from employees’ wages and salaries. Employers are responsible for deducting the correct amount of taxes from their employees’ paychecks, paying their own share of the taxes, and filing returns and depositing those funds with the appropriate government agencies on time.

Sales Tax - what do startups need to know?

Unprofitable startups can have sales tax liabilities in multiple states - if the startup has enough transactions, generates enough revenue dollars or has a “nexus” due to employees or other activity. 

To make matters even more confusing, every state has its own, unique rules regarding what triggers this type of tax obligation. Learn more about state sales taxes for startups here.

Section 382

Section 382 is a part of the IRS tax code that limits corporations’ use of any net operating loss (NOL) to offset profits. Many startups have significant expenses before they become profitable, and as a result, can accumulate net operating losses and tax credit carryovers. Typically, when the startup starts generating profits, NOLs can be used to offset up to 80% of the company’s income, with some limitations, like Section 382. Section 382 was enacted to prevent corporations with taxable income from purchasing companies with large NOL carryovers and using the acquired NOLs to offset income. The calculation to determine if Section 382 applies to a situation is complicated, with several steps, and companies that are evaluating NOLs should consult tax professionals.

Tax Credit

Tax credits are a dollar-for-dollar reduction in a tax, and a business can deduct the credit directly from taxes owed when certain conditions are satisfied. Refundable credits provides rebates of up to 100 percent of any amount that exceeds the tax liability, while nonrefundable credits only count against tax liability and do no offer refunds.Tax credits are offered by both federal and state governments, and state tax credits vary between states.

Tax Deduction

Tax deductions (often referred to as “tax write-offs”) reduce the adjusted gross income of a taxpayer, and can reduce the tax liability of a business or person. In general, the “ordinary and necessary” expenses required to run a business are tax-deductible, including things like rent, equipment and supplies, salaries, and other expenses. It’s important to keep records for any business-related expenses paid throughout the year, and to categorize those expenses into groups that match the IRS tax forms. A professional accounting firm can help your company set up an effective system to make sure you don’t miss any qualifying deductions.

Taxable Income

Taxable income is a taxpayer’s gross revenue minus any claimed tax deductions. A company is taxed on any profit made after all qualified deductions have been subtracted from gross revenues. A company’s gross revenue included income received from sales after any returns and discounts are subtracted, along with other income like investment returns, interest earned from bank accounts, and any profits from the sale of assets.

Best Reason for Startups to do Taxes on Time

There are many reasons why a startup should do its taxes on time, including tax compliance, which is crucial for VC funding. But the single best reason to do your startup’s taxes on time is to take advantage of the R&D Tax Credit. The R&D Tax Credit is a federal tax benefit that provides startups that develop, design, or improve products, processes, or software. Startups that are eligible for the R&D Tax Credit can take a dollar-for-dollar tax credit, which can be used to offset payroll taxes. So the earlier in the year you do your taxes and claim the credit, the faster you can start claiming the credit.

Startups should watch out for that GILTI feeling

Startups that are developing significant intellectual property (IP) overseas need to be aware of GILTI. Global intangible low-taxed income (GILTI) is income that’s earned overseas by US-controlled foreign corporations (CFCs), and the GILTI tax is a type of alternative minimum tax for foreign income earned by those CFCs. CFCs are defined as foreign corporations with US shareholders who own more than 50% of the foreign entity. 

Reporting foreign income isn’t new – startups with international operations or ownership are required to file Forms 5471 or 5472. GILTI is related to Form 5471, which is filed by officers, directors, or shareholders of some foreign corporations to report US ownership and the foreign corporation’s activities. 

What is GILTI?

The GILTI tax is intended to discourage startups and other companies from moving intangible assets, like copyrights, trademarks, and patents, and the profits earned from those assets, to other countries with lower tax rates than the US. While the TCJA cut the corporate tax rate to 21%, that’s still higher than a lot of other countries. Moving an intangible asset like a profitable patent to a low-tax country could help a company significantly reduce their taxes.

But don’t be fooled by the word “intangible” in GILTI. The actual calculation uses the CFC’s total income, so the tax isn’t specific to income from intangible assets. GILTI is defined as net foreign income after deducting 10% of the value of any foreign assets. As part of the Tax Cuts and Jobs Act (TCJA) of 2017, GILTI is taxed at minimum rates of 10.5% through 2025 and 13.125% thereafter.

Startups should watch out for that GILTI feeling

Are Venture Capital Raises Taxable Events?

In the United States, when an early-stage startup sells shares to a venture capitalist, generally no taxes are due. This assumes that the VC purchases shares directly from the company, similar to how a stock market investor may purchase shares during a company’s Initial Public Offering.

There are times when a VC may purchase shares that could be considered taxable events, such as when an investor purchases shares from a founder, providing the founder liquidity and triggering a capital gain. In these instances, and when raising VC funding in general, we recommend working with an experienced CPA

Best Tax Accountants Near Me

Kruze is a leading preparer of startup tax returns to startups near you. We serve all of the United States from our locations.

1515 7th Street #363 Santa Monica, CA 90401
75 East Santa Clara St San Jose, CA 95113
600 California St. 12th Floor San Francisco, CA 94108
145 W. 30th Street FL 7 New York, NY 10001
10900 Research Blvd Ste 160c-3024 Austin, TX 78759

Page Author - Leading Startup Tax Expert

Vanessa Kruze, CPA, is a leading expert in startup taxes and tax compliance. Her team at Kruze Consulting has filed thousands of tax returns for companies that have raised billions in VC funding, and her work has been diligenced by leading VCs, attorneys, and M&A teams at the largest technology companies.

Vanessa Kruze, a highly-experienced CPA, brings valuable tax expertise to startups, drawing from her rich background at Deloitte Tax and as a financial controller for a $20 million startup. As the leader of Kruze Consulting, recognized multiple times in the Inc 5000 list, she specializes in navigating the complex tax landscape for startups. Her firm is known for delivering precise and strategic tax solutions, delivering tax credits utilizing advanced tools to ensure compliance and optimize tax benefits for startups throughout the United States.

Notes: Starting prices are estimates, companies with unusual complexity, high transaction volumes or multi-state/international operations will result in additional fees (which will be discussed with the client prior to Kruze beginning the engagement); R&D Tax Credit analysis and preparation is not subject to the COST or timing estimate for a regular tax return.

Please contact us if you have questions.

About Us

A CPA Firm Specialized in Startup Accounting & Finance

A CPA Firm Specialized in Startup Accounting & Finance

Startups are our niche, and our passion. Our clients have raised over $15 billion in VC funding. We are one of only a few outsourced accounting firms that specialize in funded early-stage companies - we only offer financial and tax services to fast growing startups in the Pre-Seed, Seed, Series A, Series B and Series C stages.

The Right Accounting Partner for Your Startup’s Next Round

The Right Accounting Partner for Your Startup’s Next Round

We know how to de-risk your startup’s next venture capital round. Our team makes sure you are ready to fly through your next VC’s accounting, HR and tax due diligence. And when you use us as your bookkeeper, we set up and keep up-to-date a due diligence folder so you can get that next round of fundraising.

A Leader in Cloud Accounting Software

A Leader in Cloud Accounting Software

Our practice is built on best of breed cloud accounting software like QuickBooks, Netsuite, Gusto, Rippling, Taxbit, Avalara, Brex, Ramp and Deel. Technology makes us more efficient, saving our clients money and letting us offer higher value services like FP&A modeling, 409A valuation, and treasury advice. Startups deserve to work with CPAs using modern software.

Trusted by Top Venture Investors

Trusted by Top Venture Investors

Top angel investors and VCs refer Kruze because they trust us to give the right 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 books and taxes are in order when it’s time to raise another round of venture financing.

What types of startups does Kruze Consulting usually work with?

What types of startups does Kruze Consulting usually work with?

Kruze Consulting works with funded Delaware C-Corps. Our clients have secured Pre-Seed to Series C or Series D funding. We look to partner with our clients, going beyond the typical outsourced accounting relationship and seeking to provide a higher level advisory role. We feel honored to be a part of making the world a better place, even if it’s one debit and credit at a time.

Accounting, Finance, Taxes, & Payroll all in one solution

Accounting, Finance, Taxes, & Payroll all in one solution

Startup CFO services, startup accounting and bookkeeping services, startup annual taxes, expense reports, payroll, state sales taxes: we've got you covered. Our software provides custom tailored dashboards that can be provided weekly or monthly, depending on your preference and plan. Founders are often so busy building their company that they don’t have time to take care of their finances. Traditionally, these companies have had to work with a basket of people to get their work done, including bookkeepers, accountants, AP clerks, CFOs, consultants, and tax accountants. At Kruze Consulting, our founders have one point person, saving time and money.


We are the experts at helping seed/VC-backed Delaware C-Corps with their accounting and finances!

Talk to an experienced accountant, not a generic sales person

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Alex Janeck
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Edith Silva
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Randy Hall
Viz AI

$250M+ VC Funding Raised

"I had a great experience working with Kruze Consulting when we raised Series A. They know what VCs need to see, and how to present a startup’s books and finances. If you are going to raise venture capital, you need experts like Kruze."
Chris Mansi

Chris Mansi


Startup Venture Capital Assistance

With former venture capitalists on staff, our team is here to help you navigate the fundraising process and manage your board of directors

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Scott Orn
COO | Former VC
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Healy Jones
VP FP&A | Former VC

Scale Remote Operations & Team

"Kruze has supported us above and beyond basic accounting needs by ensuring we have everything we need to expand and support our team wherever they may be located"
Zack Fisch

Zack Fisch

Head of Operations & Legal

Clients who have worked with Kruze have collectively raised over $15 billion in VC funding.

We set startups up for fundrising success, and know how to work with the top VCs.

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Vanessa Kruze, CPA
Founder & CEO
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Experienced team helping you

Our account management team is staffed by CPAs and accountants who have, on average, 11 years of experience.

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Bill Hollowsky, CPA
VP of Accounting Services
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Claudine Vantomme, CPA
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Morgan Avery
SUT/R&D Sr. Tax Accountant
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Beth Bassler
Controller, CPA
Protara Therapeutics

Grew from a 2-person startup to a NASDAQ listed public company.

"The Kruze team helped us grow from a 2-person startup to a NASDAQ listed public company in 2 years. We wouldn’t have gotten public without Kruze’s support. Anyone thinking of launching a startup should make Vanessa their first call!"
Jesse Shefferman

Jesse Shefferman


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