Startup Tax FAQ

It must be filed with the IRS within 30 days after the stock is granted. The deadline runs from the grant date, not from vesting, and cannot be extended. See founder taxes.

Domestic research and experimental costs may be deducted currently under Section 174A for tax years beginning after 2024. Foreign research costs are still capitalized and amortized over 15 years. See Section 174A.

For stock acquired after July 4, 2025, the exclusion is 50% after three years, 75% after four years and 100% after five years or more. Stock acquired on or before July 4, 2025 follows the older five-year rule. See QSBS.

For stock acquired after July 4, 2025, the per-issuer cap is $15 million, reduced by prior exclusions and inflation-adjusted for tax years after 2026. The older cap was $10 million.

Exercising ISOs can create an alternative minimum tax adjustment equal to the spread at exercise, even though no cash is received from a sale. Model the AMT before exercising a large block of options. See equity and payroll.

Generally no. RSUs are generally taxed as ordinary income when the shares are delivered, based on their value at that time, and withholding usually applies then.

Many venture-backed startups use a C corporation because investors and option plans expect it. The right answer depends on your funding and exit plans, and on your state. Model it before forming the company.

Options generally must be granted at no less than fair market value to avoid Section 409A penalties. Most companies use an independent valuation and refresh it after material events such as a new funding round.

Only if the working relationship meets the classification tests, which look at the facts about control, tools, payment and the ongoing nature of the work. Misclassification can create payroll tax and benefit exposure.

Yes. If shares are subject to vesting and no 83(b) election is made, tax is generally due as the shares vest, based on their value at that time minus what you paid. That can be a large bill on an illiquid asset.

If you pay the full value for the shares at grant, there is generally no income to report, and future growth is taxed as capital gain. The risk is that if you forfeit the shares you generally cannot claim a loss for the amount you paid.

Generally a domestic C corporation, stock acquired at original issuance, an asset test at issuance, and an active business that is not in an excluded field, such as health, law, financial services, hospitality or farming.

No. QSBS must be stock of a C corporation. An LLC that has elected to be taxed as a C corporation can qualify, and the date of the election matters.

Venture funds generally want preferred stock, a familiar legal framework and a structure that does not pass taxable income through to the fund. A C corporation also supports QSBS.

Net operating losses from recent years generally carry forward indefinitely, but can offset only 80% of taxable income in a later year. An ownership change can limit how much of the loss can be used.

Qualifying small startups may be able to apply up to $500,000 a year of the research credit against payroll taxes instead of income tax. It requires meeting gross receipts and age tests, so check eligibility before the first payroll.

The tax treatment of a SAFE is not fully settled, so the way the company and the investor report it should be reviewed with a CPA. Consistent treatment between the parties matters.

To keep ISO treatment the options generally must be exercised within three months after employment ends. After that they are treated as non-qualified options.

Possibly. Section 1045 can allow deferral of gain from selling QSBS held for more than six months if the proceeds are reinvested in other QSBS within 60 days. The rules are specific, so plan before you sell.

A limited amount, up to $5,000, can be deducted in the first year, reduced when total startup costs pass $50,000. The remainder is generally amortized over 180 months starting when the business begins.

Yes. Nonresident aliens cannot own S corporation stock, and a U.S. corporation that is 25% or more foreign-owned generally must file Form 5472 each year, with a significant penalty for failing to file.

Delaware is where the company is formed, but states tax businesses that operate or have employees there. A company can owe Delaware franchise tax and income or franchise tax where it has nexus.

A founder who works for the corporation as an employee generally must be paid reasonable wages, and wages bring payroll tax. Unpaid work for stock has its own tax issues, so decide how founders are compensated before the first paycheck.