Startup CPA Cost: What Drives Tax Return and Bookkeeping Fees

How much does a startup CPA cost each year?

No government source sets accounting fees, so a fair price depends on scope: which returns and forms the company files, and how much work the books need before anyone can prepare them. Government charges are separate and fixed: a Delaware corporation pays at least $400 for a full year in franchise tax under the assumed par value capital method, plus a $50 annual report fee (Delaware Division of Corporations).

A startup's case stops being simple when it has missed years, a foreign owner, employees in more than one state, a research credit election that only works on a timely return, or books months behind. Each adds work that a quote should name.

Gather before asking for a quote: last year's federal and state returns, bank and card statements, the cap table with SAFEs and notes, payroll reports, and any Delaware, state or IRS notices.

Which charges are fixed whoever does the work?

Delaware's franchise tax, its annual report fee and a home state's minimum tax are owed whatever an accountant charges. A low quote does not lower them, and a quote may not include them.

A startup with millions of authorized shares can get a Delaware notice far above these minimums under the authorized shares method; recalculating with the assumed par value capital method often lowers it. See Delaware franchise tax.

California charges its minimum franchise tax to every corporation incorporated, registered or doing business there, but a newly incorporated or newly qualified corporation does not pay it for its first taxable year (California FTB). Other states set their own minimums; the Delaware C corporation calendar has one row per common home state.

Which filings add to the cost to file Form 1120?

Each filing below is separate work, so a quote should say which ones it covers. The biggest jump on the federal return is the balance sheet: a corporation skips Schedules L, M-1 and M-2 only when both its total receipts and its year-end total assets are under $250,000 (Schedule K, question 13 in the Form 1120 instructions).

A qualified small business can elect to use up to $500,000 of its research credit against the employer's share of social security tax, and then of Medicare tax (Form 8974 instructions). The election must be made by the due date of the original return, including extensions (Form 6765 instructions). See the research credit against payroll tax.

Why does the fee go up after we raise money?

A raise puts cash on the balance sheet, and that alone can take year-end assets past $250,000, which brings in Schedules L, M-1 and M-2. SAFE or priced-round money is generally not income, but it has to be recorded correctly so the balance sheet ties to the cap table; see SAFEs and convertible notes.

The money usually buys hires, which brings payroll filings, option grants that lead to Forms 3921 when employees exercise, and research spending that can support Forms 6765 and 8974. Investors also tend to ask for monthly financial statements, which means books closed every month rather than once a year. To prepare the books before a round, see cleaning up your books before fundraising.

How much does startup bookkeeping cost per month, and what moves it?

A monthly bookkeeping price only means something next to its scope: how many bank and card accounts, how many transactions, whether payroll and contractors are reconciled, and whether the books are kept on the cash or accrual basis.

• Kept monthly: each close is small and the year-end return starts from finished books.
• Months behind: someone has to rebuild the missing months from statements before a return can be prepared, which is usually priced as separate catch-up work. See catching up on overdue books.
• Cash or accrual: accrual books track unpaid bills, customer prepayments and prepaid expenses, so each month takes more work. A C corporation generally must use the accrual method for tax once its average gross receipts pass $32,000,000; investors may want accrual statements well before that. See switching from cash to accrual.

Schedule M-1 reconciles the books' income to the return's taxable income (IRS), so untidy books raise the tax return fee as well as the bookkeeping one.

Does payroll or a team in another state add cost?

Yes. Employees bring federal Form 941 every quarter, Form 940 each year, and Forms W-2, due February 1, 2027 for wages paid in the page's tax year (Publication 15). Late payroll tax deposits draw penalties of 2% to 15% of the late amount, depending on how late they are and whether the IRS has already sent a notice (Publication 15). If withheld income, social security and Medicare taxes go unpaid, the IRS can charge the trust fund recovery penalty, equal to the unpaid amount, to each person responsible for paying them who willfully did not, such as a founder who signs the checks (Publication 15).

An employee working in another state usually means registering there for payroll withholding and unemployment insurance, and can give the corporation enough presence to owe that state's income or franchise tax return. Each state sets its own rules; see business income tax in other states.

Is a fee based on our refund or credit a warning sign?

Yes. The IRS tells taxpayers to avoid preparers who base their fees on a percentage of the refund (IRS Topic 254). The IRS's rules for practitioners, Circular 230, treat a fee based on a percentage of the refund or of the taxes saved as a contingent fee and restrict contingent fees for return work (31 CFR 10.27). A federal court has barred the IRS from enforcing that restriction against fees for ordinary refund claims (Ridgely v. Lew), so the IRS's warning is the firmer guide.

The same caution applies to an offer to claim a research credit for a share of the credit. A fee tied to the result rewards a bigger claim, while the corporation alone answers to the IRS for it. A fixed or hourly fee for stated scope avoids that pull. For what else to ask, see choosing an accountant for a startup.

What should a quote list, and what is usually extra?

A quote should list each return and form by name and year, so two quotes can be compared line by line. Work outside that list is usually billed separately.

What do late filings add in penalties?

Late filings cost the penalties below plus the work of catching up, which usually makes a missed year cost more than a current one would have. A late corporate return is charged 5% of the unpaid tax for each month or part of a month, up to 25% (Form 1120 instructions).

A Delaware corporation that goes a year without paying its franchise tax or filing its annual report has its charter declared void (Delaware Code, title 8, section 510), and reviving it is a further filing.

A startup with a loss and no tax due owes no federal late-filing penalty on its Form 1120, because that penalty is figured on unpaid tax. A late return still loses that year's payroll research credit election, which has to be on a return filed by its due date with extensions. A foreign-owned corporation faces separate Form 5472 penalties; see what a preparer needs for a foreign-owned corporation. For relief, see late filing and payment penalties.

Does doing it ourselves cost less in the end?

For a pre-revenue year under the $250,000 test, with no payroll and one state, filing the return yourselves can be manageable; see the first corporate return for a pre-revenue startup.

Once the company raises, hires or claims credits, the risk shifts to what is hard to fix later. The payroll research credit election and the section 280C reduced-credit choice can only be made on a timely original return, and the section 280C choice cannot be made or changed on an amended return (Form 6765 instructions). A balance sheet that does not tie to the books carries forward into every later return and into investor due diligence.

Example

These examples are illustrative and use US dollars.

Pre-seed, no revenue, run from California

A Delaware corporation formed on July 1 with 10,000,000 authorized shares raises nothing and spends founder money. Delaware prorates a partial first year, so under the assumed par value capital method it pays about half the $400 full-year minimum, $200, plus the $50 report fee; from the second year, $400 plus $50. It registers in California the year it forms, so as a newly qualified corporation it owes no California minimum franchise tax for its first taxable year, and $800 from the second. Receipts and assets stay under $250,000, so its Form 1120 has no Schedule L. The scope is one federal return, one California return and the Delaware report.

Seed round: $2,000,000 of SAFEs, four employees in two states

Year-end cash puts assets far above $250,000, so the Form 1120 needs Schedules L, M-1 and M-2. Employees in two states mean payroll registration and returns in both, and possibly two state income or franchise tax returns. Federal payroll brings four Forms 941, a Form 940 and four Forms W-2. Two employees exercised incentive stock options, so two Forms 3921. As a qualified small business, the company claims the research credit on Form 6765 and elects to use it against payroll tax, then attaches Form 8974 to its Forms 941 from the first quarter after its Form 1120 is filed. Each item is scope a quote should list.

Two years unfiled

• Year one: a loss and no tax due, so no federal late-filing penalty, but any payroll research credit election for that year is gone. A full year's $400 Delaware tax was not paid and the report not filed, adding a $200 penalty and 1.5% a month interest on the $600, about $9 a month.
• Year two: the same again, with a second Delaware report late and interest still running on the first. A year after the first missed payment, Delaware treats the charter as void, so the company must be revived before it is in good standing.
• Year three: the current return, prepared only after two years of books are rebuilt.

The catch-up costs the rebuilt books, two late returns, the Delaware penalties, interest and revival, and the lost elections: more than filing each year on time.

Different for you?

• You are choosing who to hire: see choosing an accountant for a startup.
• A foreign person or company owns the corporation: see what a preparer needs for a foreign-owned corporation and get corporate tax help.
• You want to file the first Form 1120 yourselves: see the first corporate return for a pre-revenue startup.
• Returns are missing for past years: see catching up on unfiled business returns and get corporate tax help.
• The books are months behind: see catching up on overdue books or get bookkeeping help.
• Investors want accrual books, or receipts passed the limit: see switching from cash to accrual.
• The Delaware notice is large: see Delaware franchise tax.
• A raise is coming: see cleaning up your books before fundraising.
• You want the payroll research credit: see the research credit against payroll tax and get corporate tax help.