Startup Tax Preparation for 2025: Essential Documents and Deadlines
As we roll into 2025, we hope one of your New Year resolutions is to avoid the late filing of tax returns. If so, you are right on track to avoid late filing penalties which can be as high as 25% of your unpaid taxes. You must note that the US tax season will begin soon and will conclude on 15th April.
By amping up your startup tax prep now instead of doing so in April or even March, you can avoid having to compile your tax return forms in a frenzy which can lead to some costly mistakes.
In this spirit, we have prepared a checklist for you that will help you compile all the documents crucial for filing taxes accurately and as per regulations. Read on to know more!
2025 Tax Season
Typically, the US tax season begins in late January, however, the IRS hasn’t yet announced when it will start accepting tax returns. Then, most American startups will have time until 15th April to file taxes or apply for an extension of the deadline.
If your startup was incorporated or registered in Maine or Massachusetts, you will have time until 17th April to file taxes or apply for extensions. When you receive the deadline extension, you must file your taxes by 15th October.
Important Deadlines for the 2025 US Tax Season
- 15th January: Last day to pay estimated taxes for the fourth quarter of 2024.
- Late January: IRS starts accepting tax return filings.
- 15th April: Last date to file tax returns or apply for extensions and make the first estimated tax payment.
- 17th April: Last date to file tax returns or apply for extensions in Maine and Massachusetts.
- 15th June: Last date to make the second estimated tax payment.
- 15th September: Last date to make the third estimated tax payment.
- 15th October: Last date to file tax returns for those who applied for extensions.
- 15th December: Last date to make the fourth estimated tax payment.
By using the IRS Direct File Service, you can file your taxes electronically without incurring any charges. If you fail to file tax returns, you must pay a tax penalty of 5% of unpaid taxes for each month or part of a month that the tax return is late. So, if you file 1.5 months late, you will owe 7.5% (5% X 1.5) of the unpaid taxes as a penalty. This penalty is capped at 25% of unpaid taxes.
Similarly, if you fail to pay your taxes, you will owe 0.5% of the unpaid amount for each month or part of a month that the taxes are unpaid. This penalty is separate from the failure to file penalty. However, the failure to pay a penalty is also capped at 25% of unpaid taxes.
Additionally, the IRS may charge an interest on penalties.
To pay your dues to the IRS, you can make payments from your bank account, debit card, credit card, digital wallet, business tax account, Electronic Federal Tax Payment System (EFTPS), same-day wire, check or money order, cash, and electronic funds withdrawal.
Startup Tax Return Checklist 2025
You must file your tax returns by 15th April 2025. To do so, you must prepare the following documents.
Previous year’s tax returns
Your previous year’s tax returns will help the Internal Revenue Service (IRS) and other tax authorities to get some context about your operations, financial history, and previously availed tax benefits. The tax authorities will study trends in your revenue, expenditure, and capital formation to find any anomalies that may warrant an audit.
For instance, if you are applying for research and development (R&D) tax credits this year but haven’t reported any R&D expenses in any of your previous years and your operational history does not suggest any extensive need for R&D, the IRS may want to verify the credibility of these reported expenses.
Additionally, your previous year’s tax returns will also contain information about the tax credits, carried-forward losses, and deductions that you claimed in previous years. Some of these tax benefits are subject to time limitations as well as amount limitations which must be verified by looking at the previous year’s tax returns.
Profit and loss statements and balance sheets
Your profit and loss statements will assist the IRS in verifying your total profits for the year. This will help them estimate your corporate tax liability. Also, these statements contain summaries of key expenses, some of which may qualify for tax deductions or credits.
Your corporate tax liability can vary greatly depending on the amount of depreciation you claim. Individual income tax liabilities of founders, executives, and employees who receive equity compensation will depend greatly on your startup’s total equity. Your balance sheets are vital for calculating both of these items.
Company details
The process of filing tax returns begins by sharing your business’s legal name, Employer Identification Number (EIN), and mailing address.
Your business’ tax treatment will vary greatly depending on its state of incorporation, organization type, and the states you operate in. For instance, pass-through entities do not incur tax liabilities but a C-corporation must pay corporate taxes. If your business has attained QSB status, some states may offer QSB-type benefits for state taxes whereas others may not.
As part of your company details, you must also include details such as the names and addresses of your incorporators and your registered agent. This will ensure that any communications from tax authorities are not missed or received late.
Cap table
Cap tables are summaries of a business’ ownership structure. They contain shareholder details and details about employee stock option pools. This may serve as the starting point for calculating the individual income tax liabilities on the equity compensation you have issued.
The IRS will note any changes in your cap table to understand if any stakeholders received any additional equity stakes or if any stakeholder made an exit in the previous financial year.
This document is particularly crucial if your business underwent a merger or acquisition in the past year, as these transactions often involve complex elements such as share swaps, making it more challenging to accurately determine both individual and corporate tax liabilities.
Fixed asset list
Assets such as land, buildings, equipment, and machinery which are meant for long-term use and cannot be readily converted into cash are called fixed assets. A list of your fixed assets will help tax authorities assess your depreciation.
If you purchased or sold any assets during the year, this document will assist in calculating any capital gains or losses.
Insurance details
Some insurance premiums may qualify you for tax deductions and credits. Tax deductible insurance premiums include the premiums on general liability insurance, workers’ compensation insurance, professional liability insurance, commercial property insurance, and commercial auto insurance.
You can also qualify for a small business health care tax credit if you:
- Have less than 25 full-time employees
- Your average wage is less than $64,800
- Offer a qualified health plan to employees through the Small Business Health Options Program (SHOP) Marketplace
- Pay at least half of the cost of your employee’s healthcare coverage
If you want to take full advantage of such tax deductions and credits, you must disclose all relevant insurance details in the form of a document as part of filing tax returns.
Loan statements
While your balance sheet will include details of all your liabilities, you must still compile all your loan statements when you file tax returns. If you are claiming deductions based on your interest payments, the IRS may want to check if your loans actually qualify for these benefits. This document should explain the key terms of your active loans as well as the loans paid off in the last year. It should also contain a detailed explanation of how the proceeds from these loans were used.
Payroll records
In the USA, companies must pay federal as well as state taxes on their employee compensation expenses. Social Security tax, Medicare tax, federal income tax, and federal unemployment tax (FUTA) are some federal taxes that a business may be expected to pay. Depending on your state of incorporation, you may incur state payroll taxes such as state unemployment tax.
To calculate your payroll tax liability, tax authorities may need to know the names, incomes, and joining dates of your employees as well as the types of compensation offered, the gross employee compensation for the past year, and your average wage.
Key forms
Depending on the nature of your operations and the tax benefits that you claim, you may need to file various forms with the IRS. These forms include:
| Form | Purpose |
|---|---|
| 1120 – US Corporation Federal Income Tax Return | Reporting your startup’s income, gains, and losses as well as deductions and other tax benefit claims |
| W-2 – Wage and Tax Statement | Reporting total employee incomes and taxes withheld |
| 3921 – Exercise of an Incentive Stock Option (ISO) | Reporting exercise of ISOs by employees |
| 941 – Employer’s Quarterly Federal Tax Return | Reporting the income taxes, Social Security tax, and other taxes withheld from employee paychecks |
| 3115 – Application for Change in Accounting Method | Seeking IRS approval for a change in accounting method |
| 4562 – Depreciation and Amortization Deductions | Claiming deductions for depreciation and amortization of assets |
Filing the appropriate forms on time lowers the risk of penalties, and IRS audits, and ensures you get all the tax benefits you qualify for. You must note that the above table is not a comprehensive list. Depending on the nature of your operations, you may need to file other federal and state tax forms. Contact a trusted tax advisor to know which forms you should prepare for filing tax returns.
Eqvista – Your partner in tax compliance!
When you are filing tax returns, you need to provide an accurate picture of your financial history, explain the nature of your operations, provide details of your expenses, and make a solid case to qualify for the tax deductions, credits, and exemptions that you are claiming. To do so, you must compile your previous year’s tax returns, financial statements, company details, cap table, insurance details, loan statements, and payroll records among other documents. Then, you must prepare all applicable forms such as Form 1120, Form 941, Form W-2, Form 3115, and Form 4562.
If your startup has issued equity compensation in any form, you must also compile a history of your 409A valuations as this will enable the IRS to establish the incomes of your employees and service providers.
Do you plan to issue equity compensation to incentivize employees? If so, do not forget to get a 409A valuation from an independent appraiser such as Eqvista to ensure tax compliance. Our team of seasoned analysts has valued over 20,000 companies from various stages and sectors. Contact us to know more!
