Go Back
Tax season can be stressful for anyone, but for business owners, it can be downright overwhelming. From figuring out what business taxes you need to pay to how to do them, there’s a lot to unpack. With the right approach, though, you can simplify the process and alleviate some of the stress associated with filing.
This article corporate tax accounting provides an overview of how to handle business taxes, with a focus on startups, small businesses, and accounting services for small businesses.
Table of Content
Book a Call to Learn More About our Accounting Services (Trusted by 400+ Startups)
Understanding Different Types of Entities
When you're building a startup, one of the first decisions you'll need to make is how to structure your business legally. This isn’t just a box to tick; it affects your:
Taxes
Liability
Fundraising potential
Your exit options
In the US, you generally have five entity types to choose from: sole proprietorship, general partnership, LLC, S-Corp, and C-Corp. Each has its pros and cons, but only a couple truly make sense for fast-growing tech or life sciences companies.
Sole Proprietorship: The Simple Structure for Solo Builders
If you’re coding prototypes solo or freelancing your way into startup life, a sole proprietorship might work—for now. It’s the simplest structure: no formal registration (except maybe a DBA if you want a business name), no corporate taxes, and complete control. But here's the catch: you’re personally liable for everything, and it’s a non-starter for raising capital.
You can’t easily open a business bank account, and the second someone else gets involved (a co-founder, a customer, an investor), things get murky fast. It’s simple—but too simple for most tech founders beyond day one.
General Partnership: Built for Simplicity, Not Scalability
A general partnership is when two or more people start a business together without forming a separate legal entity. Each partner shares profits, losses, and liability.
There are variations:
LP (Limited Partnership) – One person runs the show; the other is a passive investor.
LLP (Limited Liability Partnership) – Everyone gets some protection from liability.
Why They Don't Scale
Partnerships can work if you’re just testing an idea with a co-founder and want to split income early on. But again, they don’t scale. Liability is a big issue, and venture capitalists generally avoid investing in partnerships. In the life sciences, you might see partnerships for research agreements, but they are not typically the primary structure.
Limited Liability Company (LLC): Great for Bootstrappers, Tough for Fundraising
The LLC strikes a balance between ease and protection. It shields your assets, offers tax flexibility (profits pass through to your return), and doesn’t require a board or complex corporate governance. For bootstrapped tech startups or lifestyle businesses, LLCs can be a suitable option.
From LLC to C-Corp: The VC Preference
Life sciences founders sometimes use them during the research phase. But here’s the kicker: most VCs don’t invest in LLCs. They create tax headaches for investors, don’t issue stock in the usual way, and aren’t ideal for equity-based compensation. If you plan to raise venture capital, you’ll eventually need to convert to a C-Corp. That’s why many founders just start there.
S Corporation (S-Corp): Tax-Friendly, But Restrictive
An S-Corp is a hybrid entity that combines aspects of a corporation and a partnership. It offers liability protection and allows profits to pass through to your return—no corporate tax. But it comes with strings:
Only one class of stock
Only US individuals (or certain trusts) can hold shares
These limitations are deal-breakers for most high-growth startups. While S-Corps can be great for small consultancies or productised service businesses, they don’t work well for venture-backed tech companies.
C Corporation (C-Corp): The Startup Default for a Reason
This is the standard for venture-backed startups. From Apple to OpenAI, most major tech companies are structured as C-Corps, usually incorporated in Delaware. Why? Because C-Corps are designed for scale:
You can issue multiple classes of stock (needed for investor preferences).
No cap on the number of shareholders.
Easy to offer stock options to employees.
Familiar structure for VCs and legal teams doing due diligence.
Yes, C-Corps pay corporate taxes, and yes, you could be double-taxed on dividends, but for a fast-growing company, the benefits outweigh the downsides. If you're aiming to raise capital, hire with equity, and eventually exit, a C-Corp is likely the right move.
Get It Right Early
Changing your legal structure later (say, converting an LLC to a C-Corp) can be done, but it adds friction, especially if you’ve already issued equity or signed contracts. Founders sometimes delay it to avoid upfront legal fees, but this can cost far more in clean-up later. Start as you mean to go on. Structure your startup in a way that won’t hold you back.
Your Business’s Tax Liability
All for-profit U.S. businesses are required to pay taxes, but the tax rate they incur depends on their election status. A single-member LLC, for example, defaults to sole proprietorship taxation but can opt for C-corp treatment. Since tax elections don’t always match entity type, consult a tax professional to determine the best option for your business.
C-Corps vs. Pass-Through Entities
Businesses can be taxed as a C corporation, which applies to most venture-backed technology companies and large corporations, or as one of several pass-through entities, including:
Limited liability companies
Partnerships
Sole proprietorships
S corporations
These are common for small businesses and non-venture-backed companies. To understand the amount of taxes that your business owes, it can be helpful first to take a look at the lay of the land.
The Legislative Journey of Federal Tax Changes
Federal tax code changes must pass both the House and Senate. Once approved, the bill goes to the President, who can sign it into law or veto it. If vetoed, Congress can override the decision with a two-thirds majority vote in both chambers. This process ensures multiple layers of approval before tax laws are enacted.
The tax code can change frequently, and you should work with a trusted tax advisor to stay up to date on changes.
Navigating the "Tax Cuts and Jobs Act" Sunset
As of the time of writing, the last major overhaul of the U.S. tax code was the Tax Cuts and Jobs Act (TCJA) of 2017, which introduced many provisions that are set to expire at the end of 2025. While the incoming Trump administration has not shared formal guidance, it’s expected that some tax cuts may be extended and expanded before expiring at the end of 2025.
The TCJA signed into law business tax code changes, such as:
Establishing a flat 21% federal corporate income tax rate. This is a permanent change barring future changes to the tax code.
Creating Section 179, which allows businesses to deduct the full value of specific eligible depreciable business equipment in the current year, rather than depreciating the purchase over time. This is also a permanent change, though the deductible amounts are indexed to inflation.
Enacting a 20% deduction on Qualified Business Income (QBI) for business owners of pass-through entities, like LLCs, partnerships, sole proprietorships, and S corporations.
Increasing the number of small businesses eligible to use cash accounting from $5M to $25M in average annual gross receipts over the preceding three years.
Understanding your potential tax liability before you begin preparing your filings can help make the process much less intimidating — not to mention quicker for both you and the tax professional you work with.
Corporate Tax
Corporate tax is a tax levied on the profits of a corporation. In the USA, all corporations are taxed at the federal level. Most states and some local municipalities also levy a corporate tax. It’s important to note that all businesses are obligated to file Form 1120 for federal corporate taxes, even if no income or profit was generated during the year.
All businesses are obligated to file Form 1120 for federal corporate taxes, even if no income or profit was generated during the year. The federal corporate tax rate for C corporations is currently 21%.
State-by-State Look
Depending on the state in which your business operates, you may also be subject to state corporate income tax. Just two states, Nevada and Wyoming, have no corporate income tax, while the others have varying rates and regulations.
Payroll Tax
Payroll taxes are imposed on employers or employees based on wages paid to employees. As a startup founder, if you have employees, you’re responsible for withholding and paying payroll taxes to the government. These taxes fund programs like:
Social Security
Medicare
Unemployment benefits
The High Stakes of Payroll Tax Compliance
Failure to accurately file and pay federal and state payroll taxes can snowball into a costly mistake, leaving your startup liable for millions of dollars and jeopardizing future investment opportunities. Payroll taxes typically include:
Federal Income Tax Withholding
Social Security Tax
Medicare Tax
Some states may have their own unemployment tax and other payroll-related taxes. Employers are required to file various forms, such as Form 941 for federal payroll taxes, Form 940 for FUTA, and state-specific forms for state payroll taxes.
State Sales Tax
State sales tax is a tax imposed by states on the sale of goods and certain services. The rates and regulations vary by state. As a startup selling products or services, you need to determine where you’ve established a nexus and collect and remit sales tax in those states. Nexus can be established through several different means, including:
Having a physical location
Hiring employees
Meeting certain sales thresholds in a given state
As a startup selling products or services, you need to determine where you’ve established a nexus, and collect and remit sales tax in those states.
The Hidden Costs of Due Diligence
Some startups are blindsided when they learn, usually early in due diligence, that their products and/or services are subject to sales tax, their business has nexus in states they didn’t realize they had, and those independent contractors they’ve been relying on to grow their business efficiently actually need to be classified as employees.
Avoiding Back Taxes and Penalties
Rectifying these situations can put startups at risk for substantial back taxes, penalties, and interest; therefore, it is in the best interest of founders to address these issues promptly. To comply with state sales tax requirements, startups often need to:
Register for a sales tax permit in each applicable state
Collect sales tax from customers
File regular sales tax returns
Other Taxes
Apart from corporate tax, payroll tax, and state sales tax, your startup may be subject to additional taxes, depending on its activities and location. These could include:
Property Tax: Tax on real or personal property owned by the business.
Excise Tax: Tax on specific goods, services, or activities, such as fuel, alcohol, or tobacco.
Franchise Tax: Some states, municipalities, and school districts impose a franchise tax on businesses for the privilege of operating or having employees in a location.
Use Tax: Similar to sales tax, but applied to purchases made out of state for use within the state.
Tax Credits and Fractional CFO Services
Let your business take flight while Haven manages your financial runway. Built by founders for founders, we handle everything from daily bookkeeping to complex tax filings and R&D credits that put cash back in your pocket, as well as fractional CFO services. Join 400+ startups who've saved millions in tax credits, countless hours of administrative work, and never missed a filing deadline - all while accessing 24/7 Slack support from CPAs who understand the unique challenges of growing businesses.
Book a call today to learn how our dedicated team can help you focus on building rather than bookkeeping.
Related Reading
• Business Taxes vs Personal Taxes
• TurboTax vs CPA
• Tax Preparer vs CPA
• Can a CPA Help With Tax Problems
• Corporate Income Tax Filing Requirements by State
When Are Business Taxes Due?
Business taxes are due throughout the year, so it’s best to stay on top of the deadlines to avoid penalties. The IRS and state governments require many businesses to report or pay their estimated income taxes throughout the year, in quarterly installments.
For calendar-year corporations, Federal business income taxes follow a quarterly estimated payment schedule: April 15, June 15, September 15, and January 15. If any due date falls on a weekend or legal holiday, the payment is due on the next business day.
Navigating the Fiscal and Calendar Tax Year
For corporations using a fiscal year, the due dates follow the same pattern but are based on their specific fiscal year start date. Businesses must also pay payroll taxes, sales taxes, and gross receipts throughout the year. Social Security and Medicare taxes are typically paid semiweekly or monthly, while unemployment taxes are due quarterly.
Other state taxes, including sales and gross receipts taxes, vary state by state. Most state franchise taxes are due once per year, typically in the spring, following the end of each calendar year. For example, Delaware’s franchise tax due date is March 1, 2025, for the 2024 calendar year.
Key Business Tax Deadlines for 2024
Important year-end dates this tax season include:
January 15, 2025
What’s due: 4th Quarter 2024 estimated tax payment
Who it affects: All businesses or individuals making quarterly estimated payments
March 15, 2025
What’s due: Tax returns for pass-through entities
Who it affects:
Partnerships
Multi-member LLCs
S corporations
Forms required
Form 1065 – for partnerships and multi-member LLCs
Form 1120-S – for S corporations
Important note: Applies to calendar-year businesses only. Fiscal-year entities must file by the 15th day of the third month after the close of their tax year.
April 15, 2025 (C Corporations)
What’s due: Corporate tax returns
Who it affects: C corporations (calendar-year)
Form required: Form 1120
Fiscal-year rule: File by the 15th day of the third month after your fiscal year ends
April 15, 2025 (Individual Filers)
What’s due: Individual income tax returns
Who it affects:
Sole proprietors
Single-member LLCs
Members of pass-through entities
How to Optimize Your Startup's Tax Bill
Startups incur a wide range of costs—development, infrastructure, and operations. The good news is that many of these are deductible.
Cost of Goods Sold (COGS)
If you’re building software or selling tech products, you can deduct expenses directly tied to development or production. This includes:
Hosting costs
APIs
Third-party development tools
Part of your cloud storage
Depreciation and Amortisation
Expensive laptops, servers, or software licences you’ve purchased? You may not be able to deduct the entire cost in one go, but you can claim it over time.
Home Office, Internet and Supplies
If you’re coding from home or managing operations remotely, a portion of your rent, internet, and equipment costs may be deductible. Just keep the receipts and track your usage.
Payroll-Related Expenses
Running payroll comes with its costs—provider fees, insurance, and benefits. These are all deductible, along with employer payroll taxes.
Business Education and Training
Paid for a coding bootcamp or a product management course to upskill yourself or a team member? That’s deductible.
Utilities and Business Insurance
Whether you’re renting an office or co-working space, don’t forget to deduct your monthly bills and your business coverage (e.g. general liability, cyber insurance).
Make the Most of New Business Tax Breaks
When you’re just getting started, some of the money you spent upfront—before you even launched—might be deductible.
Startup Expenses
These include items such as:
Market research
Feasibility studies
Business incorporation
Early legal and accounting fees
Travel expenses for supplier meetings
You can deduct up to $5,000 in your first year if your total startup costs are under $50,000.
Organisational Expenses
If you formed a C-Corp or LLC, the paperwork and fees involved in structuring your company might also be written off.
Employee Training
If you’ve brought on staff and invested in onboarding, that counts too. Keep records of those costs and file them accordingly.
Use the R&D Tax Credit (Most Tech Startups Qualify)
This is a big one, and it’s often overlooked, especially by early-stage tech founders. Suppose you’re developing a new software product, improving a platform, building a proprietary algorithm, or conducting trials to reduce bugs and boost performance. In that case, you may qualify for the Research & Development (R&D) Tax Credit.
You don’t need a lab coat or a patent. You just need to pass a 4-part test:
Permitted Purpose – You’re developing something new or improved (product, process, software).
Technological in Nature – Based on computer science or engineering principles.
Uncertainty – At the outset, you weren’t sure how you’d achieve the outcome.
Process of Experimentation – You tried different approaches to find a solution. If you pass those, you could claim up to $500,000 in credit, even if you're pre-revenue. You’ll need to file Form 6765 (for partnerships and S-Corps) or Form 3800 for C-Corps.
Stay Organized & Get a CPA Who Knows Startups
All the deductions and credits in the world won’t help if your books are a mess.
Use solid accounting tools
Keep every receipt (digital copies are acceptable)
Track your expenses
And when it’s time to file? Don’t just go with any accountant; find a CPA who specializes in startups, especially those in the tech space. They’ll know what questions to ask, what forms to use, and how to set you up to keep your tax bill low next year, too.
Don’t Wait Until Tax Season
Tax optimisation should be a year-round activity, not a scramble in March. The earlier you start tracking and planning, the more opportunities you’ll have to save—and stay compliant. Let your tax strategy grow with your startup, just like your product and your team. Let your business take flight while Haven manages your financial runway.
Built by founders for founders, we handle everything from daily bookkeeping to complex tax filings and R&D credits that put cash back in your pocket, as well as fractional CFO services.
Savings, Support, and Sanity
Join 400+ startups who've saved millions in tax credits, countless hours of administrative work, and never missed a filing deadline, all while accessing 24/7 Slack support from CPAs who understand the unique challenges of growing businesses.
Book a call today to learn how our dedicated team can help you focus on building rather than bookkeeping.
Related Reading
• Small Business Sales Tax Exemption
• How to Find a Good CPA
• CPA vs Tax Accountant
• LLC vs C Corp for Startup
• Small Business Tax Preparation Checklist
• Ecommerce Sales Tax
• Business Tax Compliance
• Tax Loopholes for Small Business
When to Get Professional Help
If you've elected to be taxed as an S Corporation or formed a C Corporation, the filing and compliance requirements get trickier. These structures come with additional paperwork, forms, and potential IRS scrutiny, especially around:
Reasonable compensation
Distributions
Retained earnings
A tax professional can help you avoid missteps that could trigger penalties.
You Have Multiple Founders or Investors: When to Get Professional Help with Business Taxes
When multiple people are involved, things can get complicated fast. Equity splits, SAFE notes, vesting schedules, and convertible instruments all affect your tax position. You’ll need help structuring things correctly and making sure taxes are handled fairly for all parties involved.
You're Operating in Multiple States or Jurisdictions: When to Get Professional Help with Business Taxes
If your startup is based in one state but serves users or has employees in others (which is common in tech), you may face state-level tax obligations you weren’t expecting. Each state has its own rules for:
Corporate tax
Sales tax
Economic nexus
A tax advisor can help you navigate these without getting blindsided later.
You're Claiming the R&D Tax Credit: When to Get Professional Help with Business Taxes
While the R&D tax credit is a great way to lower your tax bill, claiming it involves specific documentation and calculations. An experienced CPA can ensure you qualify and help you file the proper forms correctly—maximising your credit and minimising the risk of an audit.
You’re Planning for an Exit or Fundraising: When to Get Professional Help with Business Taxes
Whether you're preparing for a funding round or a future acquisition, tax structuring now can save you a significant amount later. A professional can help you understand QSBS (Qualified Small Business Stock) eligibility, manage stock options or RSUs, and get your cap table tax-ready before due diligence begins.
You Just Don’t Want to Miss Anything: When to Get Professional Help with Business Taxes
The early stages of a startup are chaotic. When you’re building a product, hiring, and finding product–market fit, your taxes can easily become an afterthought. A startup-focused CPA or tax advisor will catch deductions you might overlook, prevent filing errors, and give you peace of mind—so you can stay focused on growth.
Related Reading
• Sales Tax Complaince Outsourcing for Business Startups
• Corporate Tax Planning Strategies
• Best Accountants for Small Business
• Are Business Loan Payments Tax Deductible
• Best Outsourced CPAs for Startups
• How Long to Keep Business Tax Returns
• Can I Deduct Tax Preparation Fees
• How to File Taxes When One Spouse Owns a Business
• Is Rent Tax Deductible for Business
• Accounting for Tech Companies
• Bench vs Pilot
• Small Business Tax Planning
Book a Call to Learn More About our Accounting Services (Trusted by 400+ Startups)
Let your business take flight while Haven manages your financial runway. Built by founders for founders, we handle everything from daily bookkeeping to complex tax filings and R&D credits that put cash back in your pocket, as well as fractional CFO services.
A CPA Partner for Growth
Join 400+ startups who've saved millions in tax credits, countless hours of administrative work, and never missed a filing deadline - all while accessing 24/7 Slack support from CPAs who understand the unique challenges of growing businesses.
Book a call today to learn how our dedicated team can help you focus on building rather than bookkeeping.