Tax season is different for startups. Here’s what you need to know before April 15.
Early decisions can have long-term implications for fundraising, equity, and growth.
April 15 is approaching quickly, and for startups, tax season is about far more than filing a return.
Early decisions can have long-term implications for fundraising, equity, and growth. We sat down with Jennifer Blackwood, managing principal of tax at PYA Accountants and Advisors, the power behind Teknovation, to break down the top things you need to know ahead of the deadline.
#1 Entity structure takes careful consideration
Choosing the right entity is one of the most important and underestimated decisions a startup will make. It impacts how a company is taxed, how it can raise capital, and how easily it can scale.
“The flavor of the day is LLCs for most businesses,” Blackwood said. “But we’ve had to help many founders who, once they’re ready to raise money, have to convert to a C-corp.”
A C corporation is the standard for high-growth startups, particularly those seeking venture capital, because it supports multiple classes of stock and structured equity for investors and employees.
An S corporation allows profits to pass through to owners for tax purposes, but its ownership and stock limitations make it less practical for startups planning to raise institutional funding.
A limited liability company, or LLC, offers flexibility and pass-through taxation, making it a common choice for early-stage companies. However, that flexibility can create complications when issuing equity or bringing on outside investors.
“There are so many different considerations,” Blackwood said. “That’s why startups need to talk to someone about it.”
#2 Track every deductible expense
All expenses should be accurately tracked in digital accounting software — not just an Excel spreadsheet. And for business purchases, it’s critically important to keep a receipt box. For many founders, that receipt box will come in handy when considering deductions.
Common write-offs include software, equipment, marketing, travel, and even a home office. Small expenses add up quickly, and missed deductions cost early-stage companies the margin they don’t have.
“When you’re doing startups, sometimes you don’t know if things are going to get off the ground. You’re kind of on a wing and a prayer,” Blackwood explained. “But it’s important to track everything…especially startup costs. Those can be expensed or amortized, even if you pay them personally. Don’t lose the receipts.”
#3: Don’t leave R&D tax credits on the table
Federal R&D tax credits offer a dollar-for-dollar reduction in tax liability for qualifying research activities, and they apply more broadly than many founders realize. Software development, product prototyping, and technical experimentation can all qualify.
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, restored immediate expensing for domestic R&D costs. Startups can potentially amend prior returns to retroactively claim deductions they were previously forced to spread over five years.
Early-stage startups with certain qualifications may also be able to apply up to $500,000 in R&D credits annually against payroll taxes.
When it comes to R&D spent, it’s important to talk to a tax professional to ensure you’re not leaving money on the table.
#4 Pay your employees the right way
For founders navigating payroll for the first time, doing what is right versus what is easy can save them from potential audits, back employment taxes, and other costly legal situations.
“We have seen people who, instead of making someone an employee, will write a check and have the person pay taxes on it. That may be the easiest way, but it’s not the right way. The IRS will catch that eventually,” Blackwood said.
Misclassifying employees as independent contractors is one of the most common and expensive mistakes early-stage founders make.
When in doubt, consult a tax professional before cutting that first check.
#5 How to find the right tax team?
“I think that you should look for a tax partner that doesn’t just put your numbers on the return, but is going to look at the big picture for you, and long-term strategy. You need to share with that person what your goals are — are you looking for an exit within five years? Are you in it for the long haul? Are you looking for investors? All of those things are important,” Blackwood said.
The right advisor isn’t just someone who files on time. They’re someone who helps you structure decisions today so that you’re not paying for them literally years down the road.
Jennifer Blackwood is managing principal of tax at PYA, the power behind Teknovtaion. For more information, visit pyapc.com.
Like what you've read?
Forward to a friend!