There is one tax regulation that every startup entrepreneur in the United States must understand to avoid significant issues. It is also useful for employees, consultants, or anyone who gets stock options as remuneration in private business. This rule isn’t easy, and you most likely were not taught this in school; however, knowing this can help you avoid certain difficulties in business tax preparation in Campbell and Santa Cruz.
Table of Contents
Smart Habits to Prepare for Tax Season
The following tips should help startups remain organized to ease the taxation process. This means that if there are no good records of financial books, it becomes extremely hard to declare a correct tax return. Here are three habits to help you stay ahead:
Set Up Payroll Early
This is especially true because early-stage startups usually begin with friends who decide to do something together, and payroll may not be a priority. Some even have to be reminded to draw their wages after creating the account! Payroll should not be informal, but it is an important factor not to be overlooked when formalizing a company.
Track Business Expenses Correctly
Owners can afford to utilize their credit cards for business needs, but any expenses they charge must be reflected in the company ledger. The best practice would be to reimburse yourself monthly using an ‘accountable plan’ to avoid further taxes. To make it easier:
- Avoid using operating accounts from the first one.
- This should be done when you create a business account for your company or start receiving payments for services your business provides.
Hire a Tax Accountant Early
The best thing is to consult a tax accountant once your business has been incorporated. It is better not to wait until March when most Accountants are likely extremely preoccupied. One should obtain one before the end of the year so as to assist in preparing taxes.
Why You Shouldn’t Do Your Taxes
Though you might think paying a tax accountant is an additional expense for your startup, it is one of the best ways to invest. Here’s why:
Tax Accountants Save Money
Even though it may seem more cost-effective to do the taxes yourself, the professional accountant understands how to optimize the savings via credits and deductions. Their knowledge can give your company more valuable insights and, at the same time, prevent it from spending more in the future.
Founders Should Focus on Growing the Business
Even if you are great at managing finances, dealing with taxes takes time. Even if your business is small, you will be much more productive by outsourcing your accounting rather than focusing on it.
Ask for a Tax Extension
If you need more time to file your tax returns, you must file for an extension. If you make a mistake, you can file a
superseded return’, which is easier and cheaper than an ‘amended return’.
Use R&D Tax Credits
If your company works on new products or ideas, you might qualify for R&D tax credits. These credits can lower payroll taxes even if your company doesn’t profit.
Respond Quickly
Send your accountant your financial documents early and reply fast to their emails to avoid delays.
Conclusion
Tax rules change often, so stay updated. Hire a tax expert to save time, avoid errors, and follow the law.
By following these simple steps, your startup can handle taxes smoothly and comply with U.S. tax laws.