The process of filling out yearly income tax can be an incredibly frustrating and difficult endeavor. However, this problem is only compounded when completing taxes for a new startup business. As many millennial entrepreneurs have recently discovered, there are a number of steps needed to prep a brand new business for tax season and relieve some of the worries associated with such taxes.
Tracking Business Expenses
It’s difficult to maintain an effective financial recordkeeping system without tracking the expenses that are related to your enterprise. Although the IRS doesn’t technically require U.S.-based businesses to keep records for any expenses less than $75, it’s still a good practice to stick with.
There are a number of expenses you’ll want to keep track of — for instance, those related to company-sponsored luncheons or entertainment, business-related travel and receipts for all gifts or office supplies. You’ll also want to maintain detailed records of any costs associated with your business vehicles, including regular and preventative maintenance fees.
If you have recently purchased long-term insurance, as many individuals do after launching a business, remember that you cannot deduct the cost of your policy within the first year of obtaining insurance. Future insurance-related deductions are possible, however.
The proper classification of employees is another critical step to keeping up-to-date with your new business’ tax information. Although you might be tempted to classify certain workers as freelance employees or independent contractors, especially if they spend a lot of their time in a remote position, the IRS might still view them as a regular, full-time employee. As such, your business may be subject to fines or penalties for misclassifying your employees.
Determining Specific Tax Obligations
Next, make sure to determine your specific tax obligations. If you are considered to be self-employed, either as a business partner or a sole proprietor, you’ll simply use your personal tax return to file your business taxes. If you are the owner of a corporation, however, you will fill out your business income as an employee of your company.
Moreover, U.S.-based businesses are required to pay estimated taxes throughout the course of the year. According to the IRS, any corporation that expects to owe $500 or more in annual taxes is required to pay estimated taxes, which usually come in the form of quarterly payments. Failure to do so could result in significant penalties from the IRS.
If your business deals with the importation of materials or goods, it will also be subject to certain import taxes. The exact cost of such taxes is dependent on a variety of factors, including the type, amount and supplier costs associated with the goods in question.
For those who are unclear on the tax obligations of their startup business, it may be beneficial to seek outside help.
Preparing for Tax Season
There are also some steps you can take to prepare your company for the upcoming tax season. Ensuring and verifying all financial records, including income, deductions and payroll, is a great place to start. If you require legal assistance to help navigate the complex world of business taxes, you’ll want to begin your search as early as possible. Locating a competent professional now, and putting them on retainer for tax season, can save you a lot of headache when it comes time to report to the IRS.
Paving the Way for Startup Success
As you can see, the taxes associated with a startup business are enough to make anyone’s head spin. Between business expenses, payroll and state and federal tax obligations, many new startups find it difficult to go full-steam ahead after first opening their doors. However, with a little bit of time, patience and planning on your part, you can lessen the stress associated with business taxes and make tax season a little bit less bothersome.