Contractor to Founder Tax Checklist
Leaving freelance work to start a company: final 1099 filings, S corp wind-down, quarterly estimates, and the tax moves to make before you incorporate.
Going from 1099 contractor to C corp founder isn't just a career change — it's a tax identity change. The LLC you invoiced clients from last year might need to be dissolved or converted. Your last freelance checks might land the same month you incorporate.
The transition year is messy by nature. You'll probably file a final Schedule C or S corp return for the old business and start fresh with payroll and corporate filings for the new one. Overlap is normal; sloppiness isn't.
Use this checklist to close out contractor life cleanly. Details depend on your state and entity type — confirm with a CPA before dissolving anything with open contracts or liabilities.
Before you incorporate
Send final invoices and collect outstanding receivables while you're still a sole prop or LLC. Money hitting your personal account after you've moved clients to a C corp creates commingling questions.
If you had an S corp for consulting, talk to your CPA about winding it down. Short-year S returns, final payroll, and state dissolution filings take time. Don't let the old entity sit open with zero activity — states still charge fees.
Set aside cash for the tax bill on your last freelance income. If Q4 was strong, you may owe more than the safe harbor from last year's returns.
Closing out your contractor entity
File a final return: Schedule C on Form 1040 for sole props, or Form 1120-S for an S corp with a 'final return' checkbox. Issue final 1099-NEC to any subcontractors you paid $600+.
If the old entity is truly done, file final returns and send a written close-out request to the IRS with the legal name, EIN, address, and reason for closing. Letter 147C is only an EIN verification letter, not a cancellation process. Your new C corp gets its own EIN — don't reuse the old one on new bank accounts.
State cleanup: dissolve the LLC or foreign-register withdrawal if you had out-of-state registrations. California LLCs owe final $800 franchise tax unless properly canceled.
First 90 days as a founder
Incorporate (usually Delaware C corp for VC path), get a new EIN, open new bank accounts. Don't run startup expenses through the old LLC 'temporarily.'
Set payroll before you take salary. Even minimal founder salary ($60K–$80K is common pre-seed) goes on W-2 with withholding. Owner draws from a C corp aren't a thing — dividends or salary, pick one with your CPA.
If you're converting personal equipment to company use, document the transfer. Random 'the company bought my laptop' without a bill of sale is weak in diligence.
Tax forms in the transition year
Form 1040 with both W-2 (if any late contractor payments processed as payroll) and Schedule C or K-1 from the old business for the months you were still consulting.
Form 1120 for the new C corp — might be a short year if you incorporated mid-year. First-year return can show losses; keep expense receipts organized from month one.
Estimated payments (1040-ES) on freelance income earned before incorporation. Corporate estimated taxes (Form 1120-W) usually aren't needed until the company is profitable — but personal estimates still are.
Contractor-to-founder checklist
☐ Collect all open receivables before entity switch
☐ File final return for old business; mark S corp as final if applicable
☐ Issue 1099s to subs; confirm you received 1099s from clients
☐ Dissolve old LLC/S corp at state level
☐ New C corp: EIN, bank account, cap table, 83(b) if early-exercising
☐ Start payroll before first founder salary
☐ Separate books — no freelance account paying startup bills
☐ Tell your CPA both entities existed in the same year
Mistakes that cost real money
Running two businesses through one bank account. Reconstruction at tax time costs more than a second account on day one.
Skipping 83(b) on founder shares because 'I'll do it after incorporation.' The 30-day clock starts at purchase, not at convenience.
Assuming NOLs from a Schedule C carry into the C corp automatically. They don't — personal losses stay personal; corporate losses stay corporate.
Key takeaways
- Close the contractor entity properly — final return, 1099s, state dissolution — before treating the C corp as your only business.
- Don't commingle old LLC and new corp accounts, even during a short transition.
- The transition year often means two business returns plus your 1040; budget for CPA time.
- Personal NOLs from freelancing don't transfer to your new C corp.
This guide is for general education only and is not tax, legal, or accounting advice. Rules change, and your facts matter. Talk to a qualified professional before filing or making equity decisions.
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