Seed-Stage Tax Return Guide
Written by Aparna Devalla, CPA
Curated by Rubric Financial
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Why Pre-Revenue Startups Must File Tax Returns
- Federal and state tax returns are required for every incorporated entity regardless of revenue; failure to file triggers penalties and can jeopardize your corporate good standing.
- Filing establishes your tax basis, net operating loss (NOL) carryforwards, and credit elections that will reduce your tax liability once the company becomes profitable.
- Investors and acquirers will request copies of all prior tax returns during due diligence, and missing filings are a red flag that can delay or derail transactions.
- State tax return requirements vary: you must file in your state of incorporation (typically Delaware), your headquarters state, and any state where you have employees or nexus.
Related Resources
The Income Tax Provision Under ASC 740
An overview of the ASC 740 income tax provision, covering deferred tax assets and liabilities, valuation allowances, and why unprofitable startups still record a provision.
Tax & ComplianceISOs vs NSOs: Structuring Option Grants
How Incentive Stock Options and Non-Qualified Stock Options differ in tax treatment, eligibility, and when to use each type in your startup's equity compensation plan.
Tax & ComplianceSection 754 Election: Step-Up Basis for Partnerships (and Why S-Corps Can't)
The §754 election is the mechanism that lets partnerships and LLCs step up the inside basis of their assets when a partner dies, transfers their interest, or takes a distribution. S-corps have no equivalent, a real cost founders often discover too late.
Related tools and reading
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GlossaryParticipating Preferred
Preferred stock that returns the liquidation preference AND also participates pro-rata in remaining proceeds with common holders.
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GlossaryForm 1120 (C-corp Return)
Annual income tax return for C-corporations. Due April 15 (or 15th day of 4th month after fiscal year end) for calendar-year filers.
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