January Filing Deadlines Startups Commonly Miss (And How to Avoid Costly Penalties)
January is rough. The holidays are barely behind you, your team is settling back in, and suddenly you're staring down a calendar full of deadlines that can cost thousands in penalties if you miss them. Plenty of startup founders and CFOs underestimate January's compliance burden, and the results are never good. Here are the major deadlines and requirements your startup likely needs to handle this month—and what happens if you don't.
W-2s and 1099s: The Contractor vs. Employee Question
The most common January deadline is January 31st for issuing W-2s and 1099s. If you paid anyone other than yourself during 2025, you almost certainly owe someone one of these forms.
But here's where I see founders stumble: they don't understand the difference between employees and contractors, and they guess. Then they issue the wrong form. The IRS takes this seriously.
The basic rule is straightforward in theory: if you control how, when, and where the person works—they're an employee. If they control their own time and methods, they're likely a contractor. But the IRS looks at a bunch of factors. Does the person work exclusively for you or multiple clients? Do they use their own tools or yours? Can you fire them at will, or do you have a contract with defined terms? Are they incorporated?
In practice, most people who work for your startup for more than a few hours per week should be W-2 employees, not contractors. I know it's more paperwork and payroll taxes, but misclassifying someone as a contractor when they're actually an employee exposes you to audits, back taxes, penalties, and interest. And the penalty for intentional disregard—knowingly failing to file these forms correctly—is the harshest tier: at least $680 per form (the greater of $680 or 10% of the amount that should have been reported), with no annual cap. That adds up fast if you have ten 1099s you should have been filing.
If you file W-2s or 1099s late, the per-form penalty for 2025 returns (filed in 2026) is $60 if you correct within 30 days, $130 if you correct after 30 days but by August 1, and $340 if later or not at all. These aren't theoretical penalties either—they get assessed regularly.
My advice: audit your contractor roster in December. If anyone is working more than 10–15 hours per week, seriously consider moving them to W-2 status. The compliance burden is real, but so is the audit risk.
Form 1099-NEC vs. 1099-MISC: Which One?
If you do have legitimate contractors, you need to know which form to file. For years, accountants would issue 1099-MISC for independent contractor payments. But the IRS moved nonemployee compensation to 1099-NEC starting in 2020, and a lot of people still don't realize it.
Use 1099-NEC for payments to independent contractors for services—the vast majority of your contractor payments. Use 1099-MISC for things like rent, prizes, or royalties. If you're paying someone for their work, it's 1099-NEC. A common mistake is startups still filing 1099-MISC when they should be filing 1099-NEC. The IRS cross-references these, and mismatches trigger notices.
Also, you need to file 1099-NEC for anyone you paid more than $600 in 2025. If you paid someone $550, you're in the clear. But if you paid three people $550 each, and one of them gets a 1099-NEC from someone else, the IRS might cross-reference and notice you didn't file. You can't safely assume the IRS won't notice small amounts.
Delaware Franchise Tax: The Two Methods and Why You Need to Pay Attention
If you're incorporated in Delaware—and many startups are, especially if you've taken venture funding—you owe Delaware franchise tax and must file an annual report each year. The deadline is March 1—not January—but the calculation trips people up, so it's worth sorting out early.
Delaware gives you two ways to calculate franchise tax: the "Authorized Shares" method or the "Assumed Par Value Capital" method. Delaware defaults to the Authorized Shares method, which produces eye-watering bills for startups with millions of authorized shares. But you can recalculate under the Assumed Par Value Capital method and pay whichever result is lower—which, for an early-stage company, is almost always the Assumed Par Value method.
Here's what happens. Say your startup has 10 million authorized shares. Under the Authorized Shares method—Delaware's default—you could be billed roughly $85,000. Recalculate under the Assumed Par Value Capital method, using your issued shares and gross assets, and the same company often owes a few hundred dollars—frequently the $400 minimum. You provide the figures on the annual report and pay the lower number; no advance election is required.
A lot of founders don't even know this election exists. You can file it online on the Delaware Division of Corporations website before your annual report deadline. If you're a young, pre-revenue or low-revenue startup, you almost certainly want the authorized shares method. If you're generating serious revenue, you should compare both before you file. Missing this step, or worse, filing your annual report without making an election, can cost you thousands.
Annual Reports: Who Requires Them in January?
Beyond Delaware, many states require annual reports or certificates of good standing around the same time. Washington state, where many of my clients are based, requires you to file an annual report by March 1st—so it's not quite an immediate January deadline, but if you're incorporating or maintaining a presence in multiple states, you need to track each state's individual deadline.
The penalties for missing state annual report deadlines typically range from $50 to $500 depending on the state, and they compound over time. More importantly, if you miss the deadline, your corporate status can lapse, which means you lose liability protection and you could be personally liable for the company's debts. That's a much bigger problem than a $200 penalty.
Beneficial Ownership Information (BOI) Reporting
Note: as flagged at the top of this post, the BOI reporting requirements below have been effectively suspended and most startups no longer need to file. The original guidance is preserved here for reference. The Corporate Transparency Act required most startups to report beneficial ownership information to FinCEN (the Financial Crimes Enforcement Network) by January 1, 2025. If you haven't filed BOI yet and your startup was formed before January 1, 2024, you've already missed the deadline. If you were formed in 2024 or later, you have 90 days from formation.
The penalties for not filing BOI are severe: up to $10,000 per violation, plus potential criminal liability. Note that these penalties applied under the original rules; as noted above, enforcement has since been suspended. You'll report the names, addresses, dates of birth, and tax ID numbers of anyone who owns 25% or more of the company.
I know a lot of founders have raised questions about privacy and bank reports, but FinCEN is not publishing this information publicly, and the framework is designed to combat money laundering and terrorist financing. It's a compliance requirement, not optional.
The 83(b) Election Clock
If you granted yourself or your co-founders stock in December—especially restricted stock—the 30-day window to file an 83(b) election is ticking. An 83(b) election lets you pay tax on the stock's full fair market value upfront instead of as it vests, which is almost always the right move for founders receiving restricted stock.
But you have exactly 30 days from the date you received the stock. After that, the option is gone. You'll be paying tax on restricted stock as it vests, which means higher taxes over time and a messier tax situation. Founders who miss this window regret it years later.
File the 83(b) with the IRS and keep a copy in your records. It's straightforward, but the deadline is unforgiving.
Stock Option Grants and Board Approvals
If your company had board meetings at the end of the year or is planning grants early in January, make sure the board documentation is solid. Every stock option grant needs board approval (or approval from the compensation committee if you have one). This needs to happen before or very close to the grant date. If you're dating the board approval months after the grant, you're inviting tax problems and potential disputes with employees.
Also, every option grant agreement needs to spell out the exercise price, vesting schedule, and plan details. Sloppy option agreements create headaches in fundraising, M&A, or if you ever need to enforce the terms. January is a good time to audit your option grant files and make sure everything is documented properly.
409A Valuation Freshness
If your last 409A valuation is more than 12 months old, it's time for a new one. A 409A valuation is the fair market value determination your startup needs for stock options, restricted stock, and other equity compensation. If your valuation gets stale, you risk the IRS asserting that your exercise price was set too low, which can trigger tax penalties for your employees.
Getting a fresh 409A early in the year makes sense because you'll likely have updated financial information from 2025, and you'll be ready for any equity grants you plan in the new year. The cost is usually $2,000 to $5,000, and it's worth every penny.
Rule 701 Limits for the New Year
If you're using the Rule 701 exemption to grant equity without registering under the securities laws, watch the enhanced-disclosure threshold. In 2026 it's $10 million in a rolling 12-month period (indexed for inflation every five years): once your aggregate Rule 701 sales cross it, you must give every recipient additional disclosures, including financial statements. If you're approaching that level, decide in advance whether you'll prepare those disclosures or pace your grants to stay under it.
Rule 701 compliance is often overlooked until it becomes a problem in a fundraising round or acquisition. Start the year knowing your numbers.
The January Checklist
Here's what every startup should do in January:
First, issue all W-2s and 1099-NEC forms by January 31st. If you have any doubt about whether someone is a contractor or employee, err toward employee. Second, file your Delaware annual report (if applicable) and make your franchise tax election. Third, check that all your state annual reports are on track for their respective deadlines. Fourth, if you haven't filed BOI, do it now. Fifth, track any 83(b) elections from December grants—30 days goes fast. Sixth, clean up your year-end option grant files and make sure board approvals are documented. Seventh, check when your last 409A was done and schedule a new one if needed. Finally, confirm your Rule 701 tracking is current.
None of this is optional, and none of it is forgiving. The penalties add up, and the audit risk is real. These deadlines exist whether you're a pre-seed startup or a Series B company.
If you're not sure where you stand on any of these items, that's exactly what I'm here for. Reach out, and we can walk through your startup's specific obligations.
Want a legal foundation that doesn't leave you vulnerable? Let's talk about your startup's compliance roadmap.
This post is for educational purposes only and is not legal or tax advice. Consult a qualified attorney about your specific situation.
