Before entering into a new startup and raising funds in the business, one should start with the beginning steps. While operating a business, there are so many tax problems one faces, which tarnishes the overall growth of a startup. An entrepreneur should keep a vigilant eye on the tax related issues so that he can avail some important tax benefits. Here are some tax issues for startups to watch and to be aware of, so that they can easily avoid any kind of hurdles related to tax filing and such issues.
Formation and Structuring of the Startup
While organizing a startup, an entrepreneur should pay full attention to all the requirements and necessities to have a smooth working. The formation of the startup and its full structure should be determined by the business owner from the start. He should also take proper decision about organizing the startup as a corporate or LLC, i.e. Limited Liability Company. If there is a need of fund-raising, then most investors choose C Corp instead of S Corp, as C Corporation is taxed separately from its owners.
Timely payment of payroll taxes
Anyone starting a business is required to pay state and federal payroll. The different kind of taxed to be paid should be kept in mind and their timely payment should be the first step towards growth. The payroll taxes are the percentage of the salaries given to the employees. This is of utmost importance because if the entrepreneur does not pay the payroll taxes on time, it can be considered as a criminal offence. This would also lead to major penalties for the startup which makes it more difficult for the business owner to cooperate with the overall working of the startup.
Be careful about home office deductions
There are many startups which try to deduct home office for tax purposes, which has long been contentious among IRS too. One should be aware of the proper rules and regulations and should not misuse the working of tax payments and having a tax resolution. A home office cannot be opened in your residential area and must be operated separately as an office place, made primarily for business purposes. The entrepreneur should show properly that he uses home as a principal place for conducting business. He should not misguide anyone by showing his home as his office place, which being caught would lead to closing of the business.
Consult tax professional to avoid tax issues
Since starting a business is not a child’s play, neither it is a one-day task, one should be cautious of each step he takes while beginning with a startup. Being an entrepreneur you should never make careless mistakes and to avoid it, you should hire an accountant or a promoter or a tax professional who will guide you throughout the business dealings. The constant guidance of a tax professional will help you to handle the tax issues wisely and without constant fear of making unmindful mistakes.
Documentation is a long- term investment
There are times when you feel at loss due to certain transaction that comes your way and which has not been properly recorded in your documents. While beginning a startup you should pay full heed to documentation and filing, so that you record all the incomes and expenses. You should ensure proper and accurate listing of income and deductible expenses. To avoid much hassle, proper listing would help to keep each record separately like gross receipts, purchases, assets, employment taxes, travel, entertainment, gift expenses and so on.
By following these ideas, you will be able to manage every issue related to your startup wisely and cautiously.