When entrepreneurs decide to start a business, the last thing that’s on their minds is being compliant with legislation. This is regardless of whether they’re federal, state, or local regulations. They certainly don’t picture spending a better part of their day worrying about taxes. Not unless they’re starting an accounting firm.
Let’s face it, tax legislations are ever-changing, so they tend to be confusing. Considering the significant effect of the pandemic on the business landscape, they’re even more intricate and difficult to understand without the help of finance auditors. Because of these dynamics in the regulatory landscape and tax, small and medium businesses tend to experience tax missteps.
If you’re in a similar situation, as a startup, small, or medium-sized business, we’ve got you. Here are 6 tips to keep your startup tax compliant:
1. Do Research
Of course, not everyone will understand the intricate taxation regulations, especially legal matters. However, it pays to have the basic knowledge. With the basic knowledge, you can know where to start or what you’ve got to do. That’s why it’s important to do your research if you’re thinking of starting a business.
For starters, you can learn the financial jargon associated with tax compliance. Understanding these terms can help you grasp the basics when it comes to tax filing. Without further ado, here are some good examples of terms that you need to understand:
- Revenue: This refers to the money you generate from selling your products.
- Net Sales: This is your profit after deducting expenses from your revenue.
- Gross profit: This is what you are left from your revenue after deducting COGS
- Cost of goods sold (COGS): This refers to the amount of money you spent creating a product you’ve sold.
2. Have Separate Personal Finances and Business Finances
When you’re launching your startup, this is one of the first things you should do. You need to create a business account that will cater to your business’s financial needs. Meanwhile, you should have a separate personal account to cater to personal expenses. The easiest way to get in trouble with the IRS is by combining these two accounts.
When you have separate accounts, filing for taxation becomes less complicated. It allows you to have a clear record with a higher level of credibility. Meanwhile, thanks to this strategy, your personal expenses will remain private.
3. Clerical Errors
Startup owners and their staff tend to be a jack of all trades in the early stages of the business. This makes sense, because businesses tend to be dynamic in the early stages. Moreover, in the initial stages, the business owner might not have the funds to hire specialists for everything. As a result, trial and error is common. Unfortunately, when it comes to taxation, simple errors, ignorance, and multi-tasking often lead to a disaster.
Furthermore, data entry errors, late reporting, omission, among other blunders can generate severe penalties and high-interest rates. That being said, you can’t afford to make mistakes when it comes to taxation. You are responsible for things you don’t even know, whether they’re the result of an error or not. Therefore, it’s important to be cautious during record keeping and tax filing.
4. Keep Accurate Records
The accuracy of your records is not something to play around with if you want to file your taxes smoothly. When the tax filing season arrives, business owners with clean records celebrate. Whether you decide to use accounting software or do it manually, keeping accurate records is vital.
Oftentimes, people miss-record free samples among business expenses. Mistakes like these can result in inventory shrinkage. For accuracy purposes, free samples belong to the marketing expenses. Take note of that when you’re making records for accuracy purposes.
Another important point to note is the card points. Many people miss-record this too. For instance, if your inventory is worth over a million USD, then you will earn a massive number of points. During vacations, business owners can use the credit points for first-class treatment throughout.
In other words, it’s only a handful of people who record credit points as business income. Unfortunately, you cannot avoid it completely because it will still show up during auditing. Therefore, it’s important to save yourself from audit stress by including credit points among the business income.
5. Fringe Benefits
As a startup, this may not seem important now, but it will pay off later on when the business is established. Oftentimes, businesses offer their staff bonuses, membership cards, trips, company cars, and gifts as rewards. While this is a motivation and a thank you for a job well done, you should keep a record of all these fringe benefits for your tax filing.
That’s because you need to record fringe benefits as taxable income. For accurate records, research the tax requirements for different rewards. That’s because gift perks have different tax regulations.
6. Hire Experts
Why go through the frustration of filing your business taxes if it’s not your area of expertise? Truth be told, many startup owners are not professional accountants. They’re entrepreneurs who have identified a money-making opportunity. Sometimes they are simply pursuing a venture they’re passionate about.
On the other hand, filing taxes is a full-time profession. It requires a CPA. Thus, you should leave the task to the professionals. This will allow you to divert your attention to other important parts of your business. A certified accountant will advise you on the right tax plan for your business.
Unfortunately, you won’t find an all-in-one solution if you don’t look in the right places. You need a professional with comprehensive knowledge in this case. You can find such experts at Sharp LCC tax services Philadelphia.
Tax compliance isn’t as simple as many people tend to think. There’s no room for errors. Whether you knowingly or innocently commit an error, you are responsible for it. And whichever penalty falls on you afterward is yours to bear. Given that tax compliance is a complex process, one that’s ever-changing, it pays to be extra cautious.
That’s where professional help comes in handy. The team of experts at Sharp LCC tax services Philadelphia is at your disposal if you need professional help. They have the knowledge and experience to keep your startup tax compliant. Simply reach out to them to learn about the services they offer.
Hiring professionals to take care of your tax compliance might seem frivolous, but this is the best way to ensure that you’re meeting all the legal requirements. After all, the last thing you want to do is build a startup from the ground up only to watch it crumble because you made one mistake with filing your taxes. Hiring the services of someone who knows the law and has experience working with other organizations will help give you the confidence that you’re doing everything you need to do.
However, keep in mind that the simple fact that you’ve hired expert help doesn’t mean that you shouldn’t take time to learn about tax legislation in your region. Investing time into learning about the laws and what they mean will help you make wiser choices with your money and avoid attracting penalties and fines. Additionally, understanding what is required of you will help you choose wisely when you’re hiring services from external experts.
By taking time to learn the law and align your operations with this legislation, you can ensure your business is tax compliant. Additionally, hiring the right experts to guide you is a good way to make sure you are doing everything that is needed of you.