First-Year Startup Tax Checklist: Everything to Do Before Your First Filing

Formation and Federal Tax Setup

The first set of tasks establishes your company's legal and tax identity. Start by choosing and forming your entity type. Most VC-backed startups form as Delaware C-Corporations, which provides QSBS eligibility under IRC Section 1202, aligns with investor expectations, and offers the most mature body of corporate law. If you are bootstrapping or not planning to raise institutional capital, an LLC taxed as a partnership or S-Corporation may offer tax advantages.

After formation, apply for an Employer Identification Number (EIN) using IRS Form SS-4. You can apply online at irs.gov and receive your EIN immediately. The EIN is required for opening a business bank account, filing tax returns, and hiring employees.

For C-Corporations, your tax year is typically the calendar year (January 1 to December 31), though you can elect a fiscal year if there is a business reason. For LLCs and S-Corporations, the calendar year is generally required unless you can demonstrate a business purpose for a fiscal year under IRC Section 706(b) or Section 1378.

If you form as an LLC and want to be taxed as an S-Corporation, you must file Form 2553 (Election by a Small Business Corporation) within 75 days of formation or by March 15 of the tax year for which the election is to take effect. Missing this deadline requires requesting late election relief, which is not guaranteed.

Open a dedicated business bank account immediately after receiving your EIN. Co-mingling personal and business funds undermines liability protection, complicates accounting, and creates problems during tax audits.

State Registrations and Foreign Qualification

Every startup must register with the state where it was formed (typically Delaware for incorporation or the home state for LLCs). But if you operate in a different state, you must also "foreign qualify" in that state. Foreign qualification means registering your out-of-state entity to do business in the state where you have offices, employees, or significant operations.

For a Delaware C-Corp with its headquarters in California, this means registering as a foreign corporation with the California Secretary of State (Form SI-350) and the California Franchise Tax Board. California imposes an $800 minimum franchise tax on all registered entities, payable within the first quarter of each fiscal year.

State tax registrations include income tax (or franchise tax), sales tax (if you sell taxable goods or services), and payroll tax (if you have employees in the state). Each registration is separate and may be with different state agencies. In California, income tax is handled by the Franchise Tax Board (FTB), sales tax by the California Department of Tax and Fee Administration (CDTFA), and payroll tax by the Employment Development Department (EDD).

Do not overlook local business licenses and registrations. Many cities require a business license or permit to operate within their jurisdiction. San Francisco, for example, requires a Business Registration Certificate and imposes its own payroll expense tax on businesses with SF payroll above $400,000 (as of 2026).

Create a compliance calendar that tracks all state and local registration renewal dates, annual report filings, and franchise tax payments. Missing a state filing can result in penalties, loss of good standing, or even administrative dissolution of your entity.

Payroll Setup and Employment Taxes

If you have employees (including yourself, if you are a W-2 employee of your own corporation), you need to set up payroll. This involves federal and state registration, selecting a payroll provider, and understanding your tax deposit obligations.

At the federal level, you will deposit employment taxes (Social Security, Medicare, and income tax withholding) according to a schedule determined by the IRS based on your total tax liability. New employers typically start as monthly depositors, meaning deposits are due by the 15th of the following month. Deposits must be made through the Electronic Federal Tax Payment System (EFTPS).

Federal employment tax returns include Form 941 (Employer's Quarterly Federal Tax Return), filed quarterly, and Form 940 (Employer's Annual Federal Unemployment Tax Return), filed annually. You must also file Form W-2 for each employee by January 31 of the following year.

State payroll obligations vary but typically include state income tax withholding, state unemployment insurance (SUI), and state disability insurance (in states that require it, including California, New York, New Jersey, Hawaii, and Rhode Island). Each state has its own deposit schedule and filing requirements.

We strongly recommend using a payroll provider like Gusto, Rippling, or ADP from day one. Manual payroll processing is error-prone and creates significant compliance risk. A good payroll provider handles tax calculations, deposits, filings, W-2 preparation, and new hire reporting. The cost ($40 to $100 per month plus $6 to $12 per employee per month) is trivial compared to the penalty risk of late or incorrect deposits. IRS penalties for late payroll tax deposits can reach 15% of the amount due.

Estimated Taxes and Key Deadlines

C-Corporations must make estimated tax payments if they expect to owe $500 or more in federal income tax for the year. Estimated payments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. For calendar-year C-Corps, the due dates are April 15, June 15, September 15, and December 15. The required annual payment is the lesser of 100% of the current year's tax or 100% of the prior year's tax (for corporations with prior-year taxable income of $1 million or less).

For pass-through entities (S-Corps and LLCs taxed as partnerships), the entity itself does not pay federal income tax, but the individual owners may owe estimated taxes on their share of the business income. Individual estimated tax payments are due April 15, June 15, September 15, and January 15.

State estimated tax obligations follow similar patterns but with varying thresholds and deadlines. California requires estimated tax payments from corporations if the total tax for the year is expected to be $800 or more. New York City imposes its own estimated tax requirements for businesses subject to the NYC General Corporation Tax or Unincorporated Business Tax.

Key first-year deadlines to track: Form 1120 (C-Corp income tax return) is due April 15 for calendar-year filers, with an automatic 6-month extension available via Form 7004. Form 1120-S (S-Corp return) and Form 1065 (Partnership return) are due March 15, also with 6-month extensions. Form 5472 is required for any C-Corp with a 25% or more foreign shareholder, filed with the 1120. Delaware Annual Report and franchise tax are due March 1 each year.

R&D Credits, Section 195, and First-Year Tax Planning

Several tax provisions are particularly relevant in a startup's first year. Under IRC Section 195, startup costs (expenses incurred before the business begins operations) can be deducted up to $5,000 in the year the business begins, with the balance amortized over 180 months. The $5,000 deduction is reduced dollar-for-dollar once total startup costs exceed $50,000. Startup costs include market research, employee training before operations begin, advertising for the business opening, and fees for consultants and professionals.

Organizational costs (legal and filing fees to form the entity) receive similar treatment under Section 248 for corporations or Section 709 for partnerships. Up to $5,000 is deductible in the first year, with the excess amortized over 180 months.

The R&D tax credit under IRC Section 41 is available from year one, even for pre-revenue companies. Qualifying R&D expenditures include wages for employees performing qualified research, supplies used in R&D, and contract research expenses (at 65% of the amount paid). Startups with less than $5 million in gross receipts and fewer than 5 years of gross receipts can elect under Section 41(h) to apply up to $250,000 of the R&D credit against payroll taxes. This payroll tax offset is claimed on Form 8974 and applied against the employer's share of Social Security tax.

After the Tax Cuts and Jobs Act amendments to Section 174, R&D expenditures incurred after December 31, 2021, must be capitalized and amortized over 5 years (15 years for foreign research) rather than deducted immediately. This significantly impacts cash flow for R&D-intensive startups and should be factored into tax projections from year one.

At SpryTax, our first-year startup package covers entity formation, EIN application, state registrations, accounting setup, payroll configuration, and tax planning. We ensure that nothing falls through the cracks and that the company is positioned to take advantage of every available tax benefit from the start.