DIY Delaware C-Corp taxes for a new startup with no funding, no payroll and no assets

Context

We're a tiny bootstrapped startup that needs to file taxes for the 2024 tax year.

• Delaware C-Corp with two co-founders (US and Canada) and one employee in 2024.
• No external funding, no assets, and no payroll. Founders contributed cash to cover the business costs.
• Less than $1,000 in revenue (product launched at the end of the year).
• Just over $6,000 in costs – mostly cloud infrastructure, tools and oh well... tax filing costs and fees!

Naturally, we don't owe any tax to the government. Yet, the filing burden is still pretty significant, because as far as the US government is concerned, nothing is simple.

Disclaimer: None of this is financial, tax or legal advice. We're just sharing our own experience for educational purposes only. Use your own judgement or consult a professional when following in our footsteps.

What do we have to file?

As a Delaware C-Corp, it is mandatory for us to file and pay fees for:

• Corporate Annual Report and Franchise Tax in Delaware – in layman terms, this is the annual report and the fee you have to pay for the privilege of being incorporated in Delaware and enjoy the liability protection. It's due on March 1st each year.
• U.S. Corporation Income Tax Return (Form 1120) – it's like personal income tax, but for corporations. It's due on April 15th each year.
• Beneficial Ownership Information (BOI) – while this is not a tax per se, you have to file the report that shows your corporation's ownership structure. It's a new requirement that has been cancelled and reinstated a few times. The current year's deadline for is March 21, 2025.

Due to our setup, we have additional reporting burdens. Yours might be different depending on your legal entities, but here are ours:

• Annual report in the state of Florida – because our primary presence is in Florida, we have to file an annual report here.
• Tax filing in Canada – because one of our co-founders is a Canadian who owns his shares via a holding company in Canada, he also has to file corporate taxes in Canada.

Related post: How much does it cost to be a business?

How we did our taxes the first time

In early 2024, everything was new and daunting. Instead of trying to figure out taxes, we decided to hire a professional.

• We used Fondo to file our Delaware Franchise Tax and BOI. In addition to the government fees, we paid $1 to file in Delaware and $200 to file BOI.
• We used a local tax specialist to file our corporate tax and the Florida annual report. We paid $1,800 for the CPA services.
• We paid $15/month for a few months for a QuickBooks subscription to create the Balance Sheet and Profit & Loss (P&L) statements.

Overall, we paid over $2k for tax filing services.

How we are doing tax filing for 2024

This year, we're trying to do taxes ourselves.

We expect to pay just $180 for the TurboTax desktop software for the federal tax return + all the government fees.

We will update this blog post as we progress through the steps.

Delaware Franchise Tax and Corporate Annual Report

When we first started looking at the Delaware Franchise Tax, we got confused by the verbiage.

The minimum tax is currently $175.00, using the Authorized Shares Method and the Minimum Tax using the Assumed Par Value Capital Method is $400.00 with a maximum tax of $200,000.00 for both methods[...]
Annual Report and Tax Instructions

If you're up for it, ChatGPT is very good at explaining what those methods mean and show you the formulas.

This is the gist:

• If you use the Authorized Shares Method, the fee will be calculated based on how many shares you issued. If you used Clerky, Stripe Atlas, or similar services to incorporate, you'll probably have 10M common shares. This method will make your fee enormous. Ours was $85k. This method is a non-starter for a tiny startup.
• If you use the Assumed Par Value Capital Method, the fee will be calculated based on your assets. If you don't own anything tangible, your assets will be the cash in the bank at the end of the year. If you haven't raised or made a ton of money, you'll end up paying the minimal fee of $400.

Worry not! The government form is smart enough to choose the optimal method for you automatically. Most new startups with low assets will only pay $450, of which $400 is the minimal franchise tax calculated with the Assumed Par Value Capital method and $50 is the filing fee.

If you see a larger number, you'll probably want to consult a professional.

Delaware Franchise Tax filing step-by-step

1. Go to the Annual Report and Tax Instructions page and choose "Click Here to Pay Taxes / File Annual Report."

2. Look up your company's "Entity File Number" using the "search" link and paste it in the form.

3. [The scariest step] Enter your number of shares and the see the huge Amount Due that will make your stomach churn.

4. Now enter your assets value (the beginning balance of your bank account on January 1, 2025), click "Recalculate Tax" and see the final number. If your assets are low, you'll need to pay the minimal tax.

5. Complete the form, pay and save the confirmation copy. We only received an email with the confirmation of payment, not with the PDF. To be safe, download the confirmation copy PDF right there and then.

Corporate income tax, Florida annual report, Canadian corporate tax

We'll update this blog in the next couple of weeks as we do the other taxes.