R&D Tax Credits
If your startup conducts R&D activities, you could qualify for up to $500,000 in payroll tax credits. By filing the R&D credit application (Form 6765) with a timely tax return, you can boost your runway and reinvest in key hires.
Here are some helpful definitions from the IRS on eligible startups and Qualified Research Expenses:
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Qualified Research: This refers to research treated as Section 174 expenses. It must aim to discover information that’s technological in nature, intended to develop or improve a business component.
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Qualified Small Business: A corporation (including S-Corps) or partnership with:
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Gross receipts under $5 million for the tax year, and
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No gross receipts for any tax year before the five-year period ending with the current tax year.
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SaaS companies, use our calculator to estimate how much your startup could potentially claim.
Estimated Tax Planning for Your Tech Company and Employees
Making early estimated tax payments this year can save your company significant money. Inflation adjustments have raised the estimated tax penalty to 7%, up from 4% earlier in the year. These penalties can also impact your employees. Informing them to adjust their withholding or make estimated payments now can reduce their tax burden and keep morale high.
Speaking of morale, supporting your team’s retirement planning plays a key role in retention. Partner with financial advisors or your retirement plan provider to host a year-end planning session. Discuss 401(k)s, Roth vs. Traditional IRAs, and the tax implications of stock options.
For later-stage startups that have lost revenue or market share, revaluing your 409A valuation can reduce company stock value and lower the tax burden on employees who exercise stock options. Learn more about 409A valuations.
If your company offers FSAs/HSAs, remind employees about “use it or lose it” provisions. Encourage them to submit claims before year-end to maximize their benefits.
Sales Tax Exemptions
Many states, including New York, exempt tangible goods (like computers and lab equipment) from sales tax when used in research and development (R&D).
In New York, purchases qualify for exemptions if used directly and predominantly in R&D within an experimental or laboratory setting. Qualifying activities include:
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Basic research in scientific or technical fields
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Advancing technology in those fields
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Developing new or improving existing products
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Finding new uses for existing products
However, some activities do not qualify, such as:
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Quality control testing
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Efficiency surveys
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Management studies
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Consumer surveys, advertising, and promotions
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Research tied to literary or historical projects
More info here
Apply for Tax Residency Certificates
Tax Residency Certificates (Form 6166) confirm to foreign governments that your startup pays taxes in the U.S. These are essential for tech companies expanding into international markets. Without one, foreign governments may withhold taxes on your revenue, significantly cutting into profits.
The IRS faces processing backlogs, so apply early. Waiting too long can leave you holding large receivables while you await certification. Planning ahead ensures you can collect your full revenue and avoid delays.
Link to more info here
1099 Reporting
The IRS has introduced new tax reporting requirements for platforms like Venmo and Cash App. If you used these platforms to pay contractors in 2022, you’ll need to exclude those payments when issuing 1099s.
We’ve compiled more details on year-end reporting for employees and contractors, including:
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Incentive stock options
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Interest
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Contractor payments
Get Your Financials and Bookkeeping in Order
If you haven’t updated your books recently, now’s the time. Keeping your financials current creates peace of mind for tax season and ensures accurate filings.
For founders who’ve raised capital through SAFE rounds, convertible notes, or priced rounds, correctly recording these investments on your balance sheet is critical. Ensuring your revenue, spend management, and payroll systems sync with your accounting software gives you real-time insight, helping you make smarter decisions without waiting for reports.
Check out our tips here to get started.
Speak to Your CPA
Connecting with your CPA before year-end can save time and prevent headaches. Tax planning during the busy season (January to April) is tough, so schedule your conversation now. This gives you time to understand your obligations and plan cash flow accordingly.
We love helping founders with all of the above. Contact the ShayCPA team with any questions!
Disclaimer:
The content provided on this blog is for general informational purposes only and does not constitute professional accounting, tax, or legal advice. Reading or accessing this material does not create a CPA-client relationship, nor should it be construed as a substitute for individualized guidance from a qualified professional. While we strive for accuracy, Shay CPA PC makes no warranties—express or implied—about the completeness, reliability, or timeliness of the information, and we expressly disclaim liability for any errors or omissions. You should not act or refrain from acting based on any blog content without seeking the advice of a qualified CPA or other professional who can address your specific circumstances. Links to external resources are provided for convenience only and do not imply endorsement. Shay CPA PC is under no obligation to update this content and disclaims responsibility for decisions made in reliance on it.