As an early-stage startup, there are many things to manage and keep track of to ensure success. Given this, it's no surprise that filing taxes and meeting important deadlines often falls by the wayside.
It's common for companies to miss important filing deadlines for 1099, DE Franchise Tax, Federal Corp Tax, and State Corp Tax. There are several reasons why this might happen, including a lack of awareness of the deadlines and/or a lack of experience, especially if it's your first company. However, the fact remains: you need to file your taxes!
It's understandable that you may not know all the rules and regulations off the top of your head.
Here's what you should know 💡
$50 per filing that's late
DE Franchise Tax
$200 for a late filing + 1.5% interest per month on the outstanding balance
*Penalties may not be costly, but the company can be considered in "Bad Standing" for Delaware.
The penalty for unpaid taxes at the federal level is 5% of the unpaid tax. However, as a startup, depending on your profitability, you likely do not owe much in federal taxes, so this penalty may not pose a significant risk.
Penalties vary depending on the state and are typically similar to federal penalties.
What happens when your company is considered in "Bad Standing"?
🔸 May result in vendors revoking your access or disqualifying you from certain financing options.
🔸 Particularly important if you are working with a lender, a payment processor such as PayPal, or fundraising for your company.
🔸 Anyone who conducts due diligence on your company will examine your corporate status, and Delaware is often the first place they will look to see if your corporation is in "Good Standing".
🔸 The biggest downside of not filing your taxes on time or neglecting to file for an extension is that you'll miss out on the opportunity to claim valuable R&D tax credits and potentially receive cash back from the IRS.
What should you do?
As a startup, it's important to keep track of tax deadlines and regulations, but don't worry if you miss a deadline - you'll usually have time and options to rectify the situation.
The important thing is to address it promptly and seek professional help if needed. By staying informed and taking your tax obligations seriously, you can keep your business on the path of good financial health.