Your startup tax questions answered
Pilot does the bookkeeping and taxes for thousands of startups and growing businesses, which means we get a lot of questions about taxes. We've compiled common questions for the 2025 tax year, plus what you need to know heading into 2026.
Quick reference: 2026 tax deadlines
*Falls on a weekend in 2026, so deadline moves to next business day
Subscribe to Pilot's 2026 Tax Compliance Calendar to get deadline reminders →
Filing deadlines & requirements
When do I have to start filing taxes?
Even if you haven't made a dollar yet, you still need to file starting the year you incorporated.
C-Corps and S-Corps: Must file every year, even with zero activity.
Partnerships and LLCs: If you had zero activity - no income, no expenses, nothing - you don't need to file a federal return. But state rules vary, so check your state's requirements.
The IRS wants to know you exist, even if you're not making money yet.
Do I need to file quarterly estimated taxes?
If you're profitable and expect to owe $1,000 or more in federal taxes, yes, you'll need to pay estimated taxes quarterly. This applies to S-Corps, partnerships, and sole proprietors where business income flows through to your personal return and you pay at the personal income tax level.
The quarterly federal deadlines for 2026 are:
- April 15, 2026
- June 15, 2026
- September 15, 2026
- December 15, 2026
Miss these and you'll pay penalties, even if you file your annual return on time.
What are the key tax deadlines I need to know?
There are more than 10 important deadlines throughout the year. Here are the critical ones for early 2026:
January 31, 2026 - 1099-NECs due
Send 1099-NEC forms to vendors, contractors, and freelancers you paid $600 or more during 2025, unless they were a corporation.
File these with the IRS and send copies to your contractors by this date. The IRS uses these to verify income people report on their tax returns.
March 1, 2026 - Delaware franchise tax report due
Every Delaware corporation must file an annual report and pay franchise tax, even if you made zero revenue. Most early startups pay $450 - $1,000
Miss this deadline and Delaware charges a $200 late fee plus 1.5% monthly interest.
LLCs, limited partnerships, and general partnerships formed in Delaware don't file an annual report, but they must pay a $300 annual tax by June 1, 2026.
March 2, 2026 - San Francisco business tax return due
Any company doing business in San Francisco (except residential landlords) must file an annual business tax return unless they have less than $5 million in taxable San Francisco gross receipts.
March 16, 2026 - S-Corps, partnerships, and LLCs
File Form 1065 (partnerships/LLCs) and Schedule K-1s showing each partner's share of income, losses, and deductions. The standard deadline is March 15, but since that falls on a Sunday in 2026, you have until March 16.
Or, file an extension request to get an automatic six-month extension until September 15, 2026.
April 15, 2026 - C-Corps and individuals
C-Corps file Form 1120. Individuals file Form 1040 (which includes your pass-through income from S-Corps, LLCs, or partnerships via Schedule K-1).
Same deal with extensions: Request one by April 15 to get until October 15, 2026 to file. But you still need to pay estimated taxes by the quarterly deadlines.
What's the difference between a tax return extension and a payment extension?
They're not the same thing. This trips up a lot of founders.
An extension gives you more time to file your return - six months for most entities. But you still have to pay estimated taxes by the original deadlines if you have income tax liability
So if you file an extension for your C-Corp on April 15, 2026, you get until October 15, 2026 to submit Form 1120. But any taxes you owe are still due quarterly and you'll face penalties and interest if you miss these, even with an extension on file.
Bottom line: Extensions buy you time to get the paperwork right, not time to come up with the cash.
Entity structure questions
How much does tax filing change from an LLC to a C-Corp?
It gets simpler, actually.
LLCs (taxed as partnerships) file Form 1065. Each member must track their capital account year over year, meaning their share of profits, losses, and contributions. As of the 2020 tax year, IRS rules require detailed capital account reporting, which adds complexity.
LLCs don't pay income taxes directly (though state minimum taxes may apply). Instead, deductions and credits pass through to each member via Schedule K-1. Members then report that on their personal or corporate tax returns.
C-Corps file Form 1120. No owner allocation needed. The corporation pays its own taxes. It's more straightforward, which is why most venture-backed startups choose C-Corp status.
Read our guide on converting from an LLC to a C-Corp →
Should I convert to an S-Corp?
Maybe. S-Corp status can save you money on self-employment taxes once you're profitable, but it adds administrative work.
How it saves money: With an LLC taxed as a partnership, all profits are subject to self-employment tax (15.3%). With an S-Corp election, you pay yourself a "reasonable salary" subject to payroll taxes, then take remaining profits as distributions, which aren't subject to self-employment tax.
The catch: You need to run actual payroll, file additional forms, and the IRS watches for owners who pay themselves unreasonably low salaries to dodge taxes.
Rule of thumb: Consider an S-Corp election when your net income exceeds $60k-$80k. Below that, the tax savings often don't justify the extra paperwork.
Talk to your accountant. Pilot can help you model the numbers.
Tax credits & deductions
What is the R&D tax credit?
The R&D tax credit can get you up to $500,000 back for qualified research expenses. You can claim this credit against your income taxes or, if you're pre-revenue or unprofitable, against the employer portion of your payroll taxes.
Who qualifies? Both pre-revenue and profitable companies can claim this credit.
What expenses count? Only U.S. based expenses:
- Wages for employees doing R&D work
- Contractor payments for R&D
- Supplies and materials used in research
- Computer leasing / hosting costs
Important: R&D activities must happen in the US, and the entity claiming the credit must own the IP.
Read Pilot's complete guide to the R&D tax credit →
What's the deal with R&D expense capitalization?
For 2022 - 2024 tax years under TCJA, U.S. companies had to capitalize and amortize their domestic and foreign R&D expenses over 5 and 15 years, respectively. (Prior to 2022, , companies could deduct 100% of R&D expenses in the year incurred.
What counts as R&D spending? Both direct and indirect costs:
- Employee wages for R&D work
- Contractor wages for R&D work
- R&D supplies
- Overhead tied to R&D (facility costs, travel, patents, depreciation)
Why this matters: This rule can push companies that were historically unprofitable into a taxable position if their R&D spend is high enough.
The good news: Starting the 2025 tax year, domestic R&D capitalization is repealed, so only foreign R&D expenses will continue to be capitalized and amortized over 15 years.
Can subsidiary companies qualify for R&D tax credits if development happens overseas?
No. Wages paid to employees outside the US aren't qualified expenses. R&D activities must occur in the US to claim the credit.
Also, the entity claiming the R&D credit must own the IP of the product being developed. If a subsidiary owns the IP but the parent company paid for development, structure matters for who can claim the credit.
Common situations
How do remote employees affect my tax filing?
Hire someone in a new state? You'll likely need to file taxes there.
Once a remote employee starts working in a new state, you've established "physical presence," which triggers state income tax filing requirements.
Some states also have economic nexus rules. If your sales, property, or payroll in a state exceeds a certain threshold, you must file there even without employees.
Example: California requires filing if you have $610,395 in sales, $61,040 in property, or $61,040 in payroll in the state. Every state sets its own thresholds.
Bottom line: Every new state you hire in adds tax complexity. It doesn't mean you shouldn't hire remotely. Just know what you're signing up for.
Read how Pilot can help with remote employees and multi-state tax compliance →
Do I need to file payroll taxes if my company doesn't generate income?
Yes. If you have W-2 employees, you must file payroll tax returns.Your payroll provider (like Gusto, Rippling, or Justworks) should handle remitting and filing for federal and state payroll taxes on your behalf.
Don't skip this. The IRS takes payroll taxes seriously.
Do I need to send 1099s to international contractors?
It depends where they did the work.
If the contractor did all their work outside the US and isn't a US taxpayer: No 1099-NEC required.
But you generally need to withhold 30% of their pay for federal tax purposes—unless the contractor claims a tax treaty benefit by filling out Form W-8BEN (for individuals) or Form W-8BEN-E (for businesses).
You don't file these forms with the IRS, but keep them on record in case of an audit.
If an international contractor did work inside the US: Different rules apply. You may need to issue a 1099 and withhold taxes. Talk to your tax preparer about the specific situation.
Planning ahead
What accounting method should my business use?
You have two choices: cash basis or accrual basis.
Cash basis: Record income when you receive payment, and expenses when you pay them. Simple and intuitive. Most small businesses use this.
Accrual basis: Record income when you earn it (even if you haven't been paid yet), and expenses when you incur them (even if you haven't paid yet). More complex, but gives a clearer picture of your financial health, and investors prefer this.
If my company is in a net loss position, do I get a tax credit for future years?
Sort of. You don't get money back, but you generate a net operating loss (NOL) that you can carry forward indefinitely to reduce future tax bills.
For NOLs generated in 2018 or later:
- Carry forward indefinitely
- Can only offset up to 80% of taxable income in a future year
For NOLs generated before 2018:
- Must be used within 20 years or they expire
- Can offset 100% of taxable income in a future year
So yes, historical losses help reduce your tax bill once you're profitable, but there are limits.
Do I need to worry about sales tax?
If you sell physical goods, software, or certain services, probably.
Physical products: Sales tax applies in most states. You need to register, collect, and remit sales tax in every state where you have nexus (a significant presence).
What creates nexus?
- Physical location (office, warehouse)
- Employees in the state
- Economic activity above state thresholds (usually$100k in sales or 200 transactions)
Software and digital services: Rules vary wildly by state. Some tax SaaS, some don't. Some tax downloads but not subscriptions.
Bottom line: If you're selling online, research sales tax obligations early. Tools like Avalara or TaxJar can automate collection and filing.
Pilot can connect you with sales tax specialists if you need help.
Still have questions?
Taxes are complicated, and every business is different. If you're spending more than a few hours per month on bookkeeping and tax prep, it's time to hand it off.
Pilot handles bookkeeping and tax filing for thousands of startups and small businesses. We'll close your books monthly, file your taxes on time, and help you find opportunities to save money.
Do you have any other tax questions we missed? Email us at info@pilot.com and let us know.
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