Startup Newsletter December 2016
Do Startups Need to File an Income Tax Return?
One of the most common questions we receive from startups near the end of the year is “does my startup need to file an income tax return?” It’s not that surprising of a question considering that many startup companies are either pre-revenue or just beginning to generate revenue in the early years.
On top of that, many startups are spending more in development and other operating expenses than the early revenues can cover, so many startups are operating at a loss in the early development years. This is where founder’s capital, outside investors, and potentially debt come into play for startups. All of those capital sources fund the company’s development and expenses until sales revenue is able to.
Both of these things considered, while not every company’s tax and accounting situation is the same, the general answer is yes, your startup should file an income tax return, especially if the company is spending funds on development and other expenses.
Which raises the further question, “why does a company with no sales or profit need to file a tax return?”