Startup Taxes - Founders' 10 most frequently asked questions about business tax returns 2020

Q1: My company did not have any revenue for 2019, do I still need to file taxes?

Yes!

The IRS requires you to file taxes regardless of whether your business has made any sales. Also, filing taxes gives you an advantage! Surprising? The reason is you get tax credits for all the expenses paid while not having revenue. You can then claim the tax credits in the following years to lower your business taxes. For example, the expenses you paid when you initially started your company, like company incorporation fees, attorney fees, CPA fees, banking fees, etc. can all earn you credit.

Q2: If I haven’t filed taxes for previous years, do I need to file them first?

Yes, 100%!

You CAN’T file a single year of taxes if you haven’t already filed all the previous years. Because taxes are carried forward, you need the old balances to calculate the current ones.

Q3: Who does my business owe taxes to and when?

Businesses are taxed at both the federal and state level. Some states don’t have state corporate income taxes (e.g. Texas, Washington), but all companies must file federal taxes. The deadline to pay annual corporate taxes is usually April 15th.

Q4: What are business taxes based on?

Business taxes are based on net income, not revenue. Revenue is the total sales your business made. To put it simply, net income is revenue minus expenses. You pay taxes based on net income.

The more expenses your business incurred in a year, the less taxes you’ll pay. Expenses like salaries, legal, accounting fees, and software expenses are deductible from total revenue. These expenses lower your net income, which lowers how much you pay in taxes.  

Q5: I incorporated in January 2020 as a C corp. Do I need to file any corporate taxes this year in 2020?

No, not for your corporate taxes. You will file corporate taxes for your company in 2021.

Q6: Who should I hire to file my business taxes?

A CPA with startup experience.

They might charge a little more, but you will save time and money in the long run. A CPA with startup experience can guide you through the process and help you avoid potential mistakes.

Q7: Do I really need to hire a CPA to file my startup taxes, or can I do it on my own?

The short answer is that it depends on your risk tolerance. We recommend you work with a domain expert so you learn to do things the right way from day one.

Q8: What are the most common accounting software platforms for startups?

QuickBooks Online and Xero.

Q9: How can I save money when filing taxes?

In a nutshell, the key is to record all expenses incurred during the year, properly account for revenue, and not mistake any income statement items for balance sheet items.

Q10: How can I pay Federal Corporate Income Tax?

You can pay it by mailing a check to the IRS or pay it directly online.