Becoming an entrepreneur has always been the ultimate dream of thousands of business enthusiasts. After all, leading a venture and earning a living by doing what you enjoy has many convincing benefits. However, the price you will pay to conduct business on your own will prove to be a hurdle sooner than later. That said, one of the main aspects of owning a successful, lucrative business is proper tax management. If you’re not doing so, your taxes can catch up to you, and your business will be liable to the dreaded tax audit from the IRS.
After all, with every new year comes new tax laws. Not to mention, tax management is a daunting process and involves much more complexities than filing personal taxes.
However, tax management won’t be an overwhelming process if you remain organized and follow a few essential tax management tips. In the end, a little preparation and organization go a long way. So, without further ado, let us look at some tax management tips that startups should incorporate early on. Doing so will allow you to save money and time and prevent your startup from being unnecessarily audited by the IRS.
Hire a professional tax accountant
Undoubtedly, no matter how prepared you are for the tax season or how well you maintain your financial records, hiring a tax accountant is always wise. These professionals have first-hand knowledge of the complexities and intricacies involved in the tax management process for startups. In addition, they can help you identify deductions you may have missed out on before.
Moreover, your tax accountant will always look out for any tax law changes that could affect your startup. Therefore, hire an accounting professional with an online LLM tax degree to ensure that you file your taxes accurately and on time. Pursuing eLearning allows them to manage work and studies simultaneously while mastering essential accounting and finance skills in the process. Hence, hiring them will prove beneficial for your startup in the long run.
Maintain your financial statements accurately
Accurately maintaining and updating your startup’s financial statements will provide you with tons of benefits while planning and preparing your taxes. Doing so will enable you to identify your startup’s health while determining your profit margins, operating revenue, and liquidity.
Moreover, accurate financial statements act as resources for your tax attorney or accountant and allow them to streamline your startup’s tax filling process. Plus, financial statements also ensure that you file the correct amount of taxes, keeping the IRS off your heels.
Utilize accounting software for record-keeping purposes
While most startups are typically more focused on growing their business, they might forget about keeping records of every financial transaction. However, they must start doing so early on. There are tons of accounting software out there that can help them with the entire record-keeping process. Plus, they will make a huge difference when it comes to proper tax management. That said, when it comes to tracking your transactions and expenses, you must be as detailed as possible.
Such software will allow you to categorize your payments and transactions correctly, so everything remains fresh in your mind. In addition, such accurate and classified record-keeping will enable you to identify discrepancies between bank records and accounting systems. Likewise, you can even maintain all of your financial statements and save money and time when the tax season arrives.
Track personal and business expenditures separately
Most startup owners usually spend their money and time on growing their venture, resulting in the merging of personal and business accounts. However, it’s best not to underestimate the importance of separating your personal and business expense.
By keeping both of them separate and carefully tracking your expenditures, you will be able to avoid confusion when it comes to filing your business taxes. Moreover, suppose your startup is operating under the LLC or corporate legal structure. In that case, the law requires you to separate your financial records.
Manage your payroll correctly
If your startup has onboarded employees, there will be tons of scheduled payments and tax forms you’ll have to consider to ensure the IRS doesn’t get on your back. Due to such a reason, getting on top of your payroll is critical. Every employee must fill out a W-4, matching the employee’s Medicare payment and Social Security. Moreover, you should also file the W-3 and W-2 forms with the Social Association every year.
If all of this seems foreign to you, you are not alone. Many startup owners hire an accountant to file tax forms and pay the government on time. So, you must do the same if you want to stay in the clear.
Most businesses can claim depreciation on the wear and tear of their business assets over time. For instance, you can claim depreciation on your fleet of trucks or computers. According to the IRS, business assets such as vehicles, machinery, and furniture fall under the depreciable item category.
Moreover, you can also claim depreciation on your property to ease your tax situation over time. However, only claim your depreciation if you expect a profit. Otherwise, it won’t benefit your case at all and will be a big waste of time.
Filling business taxes sure does sound like a ton of work. However, the truth is that the tax filing process should not be your problem alone. Every startup owner should hire someone who can gather legal paperwork and keep track of finances, be it a tax accountant, financial planner, or assistant. In the end, as long as you keep your financial statements in check and track your expenses properly, you have nothing to fear, let alone an IRS audit.