Chapter 6. A quick overview of government mandated tax deadlines
All the corporate taxes you need to pay
Required by law, you will need to pay taxes to the federal, state and city governments.
These are two most common taxes startups pay at the federal level:
1) Company annual tax return (Yearly, usually done by CPAs)
2) Payroll taxes (Monthly, usually done by payroll companies)
On the state level, here are the 3 taxes you will need to pay:
1) Franchise tax (Yearly, relatively easy to do, your accounting team can do it in house)
2) Payroll taxes (Monthly, usually done by payroll companies)
3) Sales taxes: your business isn’t actually paying any sales taxes to the government; instead you collect the sales tax from customers and route it to the government. Your role is simply that of a collection agency.
Then there’s city or county taxes. The taxes to cities or counties vary widely, here are the two most common taxes:
1) Sales taxes to the city/county (Monthly or quarterly, usually done by your accounting team)
2) Property tax (Yearly, usually done by CPAs)
Depending on your industry and location, you might also have some other taxes that you are liable for, but above are the most common taxes you will need to pay.
The next mandatory tax related task is to file 1099s for the contractors.
Yearly Mandatory Task - 1099 filings for contractors
Every January, filing 1099s is usually one of the top priorities on startups’ to do list. Here is a quick summary on what you need to know about filing 1099s.
The deadline
Usually it is the last day of January, for example, for next year it was Feb 1st, 2021. If you file your 1099s late, the penalty is $50 per 1099 filing; the penalty amount increases when time goes on.
Who do you issue a 1099 to
You need to issue a 1099 to any independent contractor, service provider, freelancer or vendor who is a self-employed individual AND has been paid over $600 in a calendar year (from January 1st – December 31st, 2020) by your firm.
Keep in mind: C-corp and full-time employees DO NOT need to issue a 1099. 1099s only applies to freelancers, contractors, single member LLCs and S-corp.
Yearly Mandatory Task - File Delaware Franchise Tax
If you plan to file DE franchise tax on your own, here’s everything you need to know about DE franchise taxes.
Deadline for DE franchise tax
March 1st of each year.
Two different ways to calculate the tax amount owed
There are two methods to calculate the amount of DE Franchise Tax you owe:
The Authorized Shares Method:
If your company has 5,000 shares or less, it pays the minimum tax of $175.
For companies with 5,001 to 10,000 shares, the tax is $250.
For companies with over 10,000 shares, the tax is $250 plus $85 for each additional 10,000 shares or portion thereof. The maximum annual tax is $200,000.
If your company hasn’t issued many shares, it is cheaper to use the Authorized Shares method, and will be your preferred method to calculate your DE Franchise Tax
The Assumed Par Value Method:
For corporations using the Assumed Par Value Method, the minimum tax is $400. For this method, the corporation must report its total number of issued shares (including treasury shares) and total gross assets. The tax rate using this method is $400 per $1,000,000 or part thereof of assumed par value capital. The maximum annual tax is $200,000. You are also required to attach a copy of your Balance Sheet when using this method, so don’t forget.
A CPA’s 2 Cents
If your company issued a lot of shares but doesn’t have too many assets, it is cheaper to use the Assumed Par Value method.
Next Section:
7. Expand Globally