Section 174 capitalization, the research credit against payroll tax, multi-state sales tax nexus, revenue recognition and QSBS for founders.
A SaaS company can be losing cash and owe tax in the same year. Section 174 requires development salaries and contractor costs to be capitalized and amortized, so a company reinvesting everything in engineering shows taxable income. Annual subscriptions collected up front are revenue the tax rules recognize on their own schedule. And software sold into every state creates sales tax obligations that most companies discover by notice.
The plan works both sides. The research credit offsets payroll tax before the company is profitable and income tax after. Section 174 treatment is planned with the credit, not against it. Deferred revenue elections align tax to the books. The state footprint is mapped and filed deliberately. And for founders and early employees, the C corporation, an 83(b) election and section 1202 eligibility are checked years before a liquidity event.
We work with your controller and your existing CPA, review the cap table, the revenue ledger and three years of returns, and write the plan with the elections and filings on a calendar.
What we typically see: Taxable income in a year of losses. A research credit never claimed. Sales tax registered nowhere. QSBS eligibility assumed. Deferred revenue taxed when the card ran.
Each one is modeled against your numbers and written into the blueprint with the documentation it needs.
We had a tax bill in a year we lost money and had never filed the credit. Planning the two together turned the bill into a refund of payroll tax.
Section 174 capitalizes development costs and amortizes them over five years, so most of the engineering payroll is not deducted in the year it is paid. The credit and the elections soften it.
Yes. Qualified small businesses can apply the credit against payroll tax for up to five years, which puts cash back before there is income tax to offset.
In a growing number of states, yes, and economic nexus thresholds mean revenue alone can create the obligation. The plan maps where you must register.
Only for a domestic C corporation that met the gross asset and active business tests at issuance, held more than five years. We verify it rather than assume it.
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