Yes, you must file and 1120… even if you had no activity for the year!
Filling out Form 1120 is not as easy as just inputting a few numbers, there’s actually quite a bit of informational data that needs to be entered as well. You have to have to right knowledge to know where to put those numbers and the right data. For example, if your startup had $0 revenue and expenses but had an international subsidiary - $0 revenue and expenses - and you don’t file a 5471 with your 1120… You could get hit with a $10,000 penalty!!
Filling out tax returns is a bit like a driving a rocket ship; you have to know which levers to pull and buttons to push at the right time. And while tax software exists, you need to work with a pro to make it all work. Just like you cant purely rely on WebMD to self-diagnose. With your financial health on the line, that’s why CPA’s are licensed and regulated. (Fun fact: the CPA exam is widely considered to be the most difficult professional exam.
Another crucial aspect to consider is Qualified Small Business Stock (QSBS). If you’re a startup founder or investor, you might be eligible for significant tax savings through QSBS. Under Section 1202 of the Internal Revenue Code, you can exclude up to 100% of the gain on the sale of QSBS held for more than five years. This can result in substantial tax savings, but navigating the rules and requirements can be complex. Working with a knowledgeable CPA is essential to ensure that you meet all the criteria and maximize your benefits. [Link to your QSBS page]
In summary, even if your business had no activity or revenue under $50,000, filing an 1120 is still mandatory. Seeking the guidance of a professional CPA firm can help you navigate the complexities of tax filing, avoid penalties, and take advantage of valuable tax-saving opportunities like QSBS.
Vanessa Kruze, a seasoned CPA, has an impressive track record prior to establishing Kruze Consulting. Her experience includes pivotal roles at Deloitte Tax and as a controller for a substantial startup with over 120 employees and $20 million in revenue. Under her leadership, Kruze Consulting has emerged as a distinguished CPA firm, recognized on the Inc 5000 list for five consecutive years, illustrating rapid growth and success in the competitive accounting landscape. Vanessa's unique approach, combining deep industry knowledge with advanced automation and software solutions, has positioned her firm as a leader in providing comprehensive accounting services to startups across the United States.
