What taxes is my startup subject to?
Income tax is a tax on the payments a startup receives from the sale of goods or services or from other sources of income.
Taxable Income = Gross Income - Deductions
Gross Income: receipts and gains from all sources of income, before any deductions
Deductions: any item or expenditure subtracted from gross income to reduce the amount of taxable income
Example: In 2016, Acme, Inc. sold $1,000,000 of widgets, paid $500,000 in employee wages, and had no other income or applicable deductions. Therefore, Acme, Inc.'s 2016 taxable income is $500,000 ($1,000,000 - $500,000).
Federal Income Tax
Every U.S. corporation must file an annual federal income tax return, even if the corporation has no profits, sales, or other business activities.
All C corporations must file Form 1120, U.S. Corporation Income Tax Return. Startups incorporated on Clerky are C corporations by default.
A corporation must file its annual federal income tax return and pay its federal income taxes by the 15th day of the 4th month after the end of its tax year. Most startups have a tax year end of December 31. This means that, for most startups, taxes are due April 15.
State Income Tax
Each state in the U.S. has its own tax system that, depending on a startup's activities in the state, requires annual filings. A state income tax filing is separate from a federal income tax filing.
We encourage you to consult with a tax professional to determine which U.S. states (if any) may require you to pay state income tax.
Some states in the U.S. require startups to pay an annual franchise tax. Generally, a startup is subject to a state's franchise tax if the startup is incorporated in or conducting business in that state. For example, Delaware requires all Delaware corporations, regardless of a corporation's activities in Delaware, to pay an annual franchise tax.
To learn more about Delaware's annual franchise tax, see What annual compliance matters does Delaware require for a Delaware corporation?
We encourage you to consult with a tax professional to determine which U.S. states (if any) may require you to pay franchise tax.
Depending on a startup's activities or location, a startup may be required to pay other taxes. We strongly recommend consulting with a tax professional experienced with U.S. companies in your jurisdiction.