C Corp With No Revenue: Your Startup's First Form 1120

Does a C corporation with no revenue still file Form 1120?

Yes. Every domestic corporation that is not tax-exempt files an income tax return "whether or not" it has taxable income (Form 1120 instructions; 26 CFR 1.6012-2). The only relief is for a corporation that got a charter but never completed its organization, did no business and had no income, and it must ask the IRS for it. Form 1120 is due by the 15th day of the fourth month after year-end: April 15, 2027 for a calendar year. Form 7004, filed by that date, extends the filing deadline six months, to October 15 for a calendar year, but not the time to pay. For other business types, see which returns your business files.

A first return with no sales and a few bills is simple. It stops being simple when the startup raised money on SAFEs or notes, ran payroll, paid developers, may claim the research credit, has a foreign owner, or missed the deadline. Some choices exist only on a return filed on time.

Gather before you start:

• The incorporation date, and the dates shares were first issued and the bank account was opened
• Bank statements through year-end, including interest earned
• Every SAFE, note and stock purchase agreement, with amounts and dates
• Payroll reports and contractor invoices, with where each person worked
• Receipts for costs founders paid personally
• The Delaware or other state notices received

Is our first return a short year, and which tax year do we pick?

Usually yes. A corporation's first tax year starts on the earliest date it has shareholders, has assets or begins doing business, and the first return covers only that part of a year (Form 1128 instructions; 26 CFR 1.6012-2). A short first year is due by the 15th day of the 4th month after it ends.

The corporation adopts its tax year simply by filing its first return on that year; an extension request, an EIN application or an estimated payment does not adopt one (Publication 538). A startup can pick the calendar year or a fiscal year, but changing later generally needs IRS consent on Form 1128. A year ending June 30, or a short first year ending in June, has an earlier due date, the 15th day of the 3rd month (Form 1120 instructions).

What goes on page 1 of Form 1120 when the only entries are expenses?

Check Initial return in item E and enter the real start date of the short year. Leave line 1a gross receipts at zero if nothing was sold. Report interest on bank deposits and Treasury bills on line 5: it is income even before the first customer (Form 1120 instructions). Money market fund payouts are dividends, reported through Schedule C on line 4 (Publication 550). A startup whose only income is interest or dividends, with five or fewer people owning more than half its stock, can be a personal holding company: it checks item A, box 2 and attaches Schedule PH, even in a loss year; see interest on a startup's raised cash.

Deductions go on their usual lines: officer pay on line 12, other wages on line 13, rent, taxes and the rest below; start-up and organizational amounts allowed this year go on line 26 with a statement, plus Form 4562 for amortization that begins this year. Line 28 is then a loss. Line 29a is only for losses carried in from earlier years, so it stays empty on a first return. A return of "all zeros" is correct only if the corporation truly had no interest and no costs.

Is SAFE money or founder money income to the corporation?

No. Money a corporation receives for its own stock is not income (26 U.S.C. 1032), and founder loans are debts, not revenue. A SAFE is a right to future stock, generally not income when received; how it is classified and recorded until it converts is covered in SAFEs and convertible notes.

The money still changes the return: the cash raises year-end assets, which can bring in Schedules L, M-1 and M-2 (next section). A bookkeeping entry that codes the money as sales flows straight to line 1a and creates taxable income at the 21% federal rate.

Do we need Schedules L, M-1 and M-2?

Only if total receipts or year-end total assets reach $250,000. A corporation with both below that amount answers Yes to Schedule K, question 13 and may skip all three (Form 1120 instructions). Total receipts means line 1a plus lines 4 through 10, so interest counts.

Schedule L is a balance sheet that must agree with the books, M-1 reconciles book income to taxable income, and M-2 tracks retained earnings. A startup that raised money needs a real year-end balance sheet before it can file.

Can we deduct formation and pre-launch costs now, or are they spread out?

Only from the year the business begins. In that year a corporation deducts up to $5,000 of organizational costs and up to $5,000 of start-up costs; each limit shrinks dollar for dollar once its category passes $50,000, and the rest is deducted over 180 months from the month business begins (26 U.S.C. 195; 26 CFR 1.248-1).

This is the main trap for a pre-revenue startup. "Begins business" is a question of fact: forming the corporation is not enough, but activity that establishes the nature of the business, such as acquiring the operating assets it needs, can be (26 CFR 1.248-1(d)). If the business has not begun by year-end, these costs wait. The deduction is elected by default; choosing to capitalize instead must be done on a timely return, extensions included, and is irrevocable (26 CFR 1.195-1). Stock-issuance costs, such as legal fees for the round, are not organizational costs. For costs paid before incorporation and founder reimbursements, see startup costs before launch.

Are our US developers' wages deductible this year?

Generally yes. Section 174A, added by Public Law 119-21, lets a corporation deduct domestic research and experimental costs in the year paid or incurred, and treats software development as research (Public Law 119-21, section 70302; Form 1120 instructions). That covers US developers' wages and US contractors' development fees. A corporation may instead elect, on a timely return, to amortize them over at least 60 months.

Two conditions matter. Section 174A reaches costs paid "in connection with" the corporation's trade or business, and section 195 excludes costs deductible under 174A from start-up costs, so qualifying development is not held back until launch. Whether early development meets that test is fact-dependent, and no regulation under 174A addresses it yet: keep records of what was built and how the corporation plans to use it. Work done abroad is spread over a longer period instead; see deducting software development done abroad. A corporation that existed in earlier years and capitalized development costs should read deducting US software development costs.

What happens to the first-year loss?

The loss stays with the corporation; founders cannot deduct it personally. A C corporation's loss generally carries forward with no expiry, and in a later profitable year can offset up to 80% of taxable income (26 U.S.C. 172). Keep a schedule of each year's loss from the first return on. Funding rounds can later limit the loss under section 382; see net operating losses for startups.

Should the first return elect the payroll research credit?

If the startup paid for qualified research, the first timely return is where to decide. A qualified small business, with gross receipts under $5 million and no gross receipts in any year before the last five, can elect to use up to $500,000 of its research credit against the employer's payroll tax (26 U.S.C. 41(h); Form 6765 instructions).

The election is made on Form 6765, filed with the income tax return by its due date, extensions included. A late return cannot make it, so that year's payroll offset is lost. The offset starts with the first calendar quarter after the return is filed, so filing early can bring it forward. The credit also reduces the research deduction unless the reduced credit is elected. For eligibility, the amount and Form 8974, see the research credit against payroll tax.

What else is due with the first Form 1120?

Several filings run alongside it, and none depend on revenue. Each has its own date:

For the full Delaware and state calendar, see Delaware C corporation taxes for startups. A foreign owner's first return is covered in first corporate return with no revenue.

Can we prepare and file Form 1120 ourselves?

Yes. No rule requires a paid preparer; an authorized officer, such as the president or treasurer, signs. The corporation must e-file if it files 10 or more returns of any type in the calendar year, counting payroll returns, W-2s and 1099s; below that, paper is allowed (Form 1120 instructions).

Doing it yourself fits a year with no payroll, no SAFEs or notes, little cash and no foreign owner. Check a self-prepared first return for these errors:

• SAFE or founder money coded as sales on line 1a
• Interest or fund dividends on raised cash left off the return
• Start-up costs deducted before the business began, or treated as fully deductible
• Schedule K, question 13 answered Yes after cash passed the threshold
• No Form 6765, so the payroll credit election is lost for the year
• Wrong start date, or Initial return not checked
• Founder-paid costs deducted with no record of reimbursement or contribution

What if the Form 1120 deadline already passed?

File now. The federal late-filing penalty is 5% of the unpaid tax per month, up to 25%, and the minimum penalty for a return over 60 days late cannot exceed the tax due, so a first return with no tax due generally carries no federal late-filing penalty (Form 1120 instructions). Choices tied to a timely return are lost for that year, chiefly the payroll research credit election. Form 5472 and state penalties work differently. See late-filing and payment penalties.

Example

Illustrative amounts in US dollars; each scenario is separate and assumes a calendar tax year.

Formed in September, $30,000 spent, no revenue

A startup incorporates and issues founder shares on September 1. It pays $8,000 of formation legal and state fees and $22,000 to US contractors building its software, and earns no revenue. Its first return covers September 1 to December 31 and is due April 15. If it began business in September, it deducts $5,000 of the organizational costs, plus about $67 of the remaining $3,000 for four months, and the $22,000 of development under section 174A. The loss of about $27,000 carries forward. Its cash and assets stay under $250,000, so it answers Yes to question 13 and skips Schedules L, M-1 and M-2.

$1,000,000 SAFE in December

The same startup closes a $1,000,000 SAFE in December. The money is not income, but year-end cash passes $250,000, so Schedules L, M-1 and M-2 are required. If the bookkeeping had coded the SAFE as sales, the return would show $1,000,000 of sales and, after the $27,067 of costs, about $204,000 of federal tax at 21%.

$400,000 of US engineer wages

A startup pays $400,000 of wages to US engineers building its product. The wages are deductible under section 174A this year, less any research credit claimed unless the reduced credit is elected. If part of that work is qualified research and the startup is a qualified small business, the corporation can elect the payroll research credit on Form 6765 with its return, filed by the extended due date. Filed late, the election for that year is gone, and the credit can only carry forward against future income tax.

Different for you?

• Not sure the business must file, or it is an LLC or S corporation: see which returns your business files.
• A founder or investor lives outside the US: see the foreign-owned first return and get corporate tax help.
• Costs were paid before incorporation, or by founders personally: see startup costs before launch.
• The startup raised on SAFEs or convertible notes: see SAFEs and convertible notes.
• There was payroll or research spending: see the research credit against payroll tax; the election is lost if the return is late, so get corporate tax help with payroll reports and project records before the due date.
• Losses are building and new rounds are coming: see net operating losses for startups.
• The deadline passed or earlier years were never filed: see late-filing and payment penalties and catching up on unfiled business returns.