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- 1 Why Young Entrepreneurs Shouldn’t Put Off Their Tax Planning
- 2 How Can I Be A Better Tax Planner?
- 3 Need a Tax Professional In Your Corner to Help Reduce Your Taxes?
Income taxes are a necessary evil, whether you’re an individual or a startup business. For startups, tax planning is essential. Many startup entrepreneurs figure that taxes are something to worry about only when the money starts coming in. However, with tax planning, sooner is always better than later.
There are many reasons you need to take into account your tax planning right from the start. It can be a lot of work, but it comes with a steady flow of dividends. A good financial consultant or outsourced CFO can help you build accounting solutions designed for success. We’ll explain why this is important to do and some tricks you can employ to max a great tax plan.
Why Young Entrepreneurs Shouldn’t Put Off Their Tax Planning
You might think you only need to worry about tax planning and strategy when your business is through the roof. After all, if you are making enough money that you need to pay taxes, that’s a sign that business is booming - isn’t it?
The thing is, good business planning involves not just measuring how much money you’ll make but also how much money will be available to use at certain stages and times. Every startup needs a steady cash flow to make purchases and investments. You need to have a total understanding of at what point you will start losing money to taxes and the chances for tax rebates.
Failure to account for taxes can lead to you having to pay taxes when your cash flow is at a low point - you don’t get the luxury of telling the government to wait for you patiently! Similarly, you don’t want to end up where potentially valuable investments need to be delayed because you didn’t realize the taxes were coming due.
Another primary reason you should care about tax planning is because of potential legal ramifications. There are a lot of ways to run afoul of the IRS for the unwary. You should make sure that you understand all of the new tax rules that running a startup will entail before you get started.
How Can I Be A Better Tax Planner?
The best way to succeed at your startup’s taxes is always to hire a professional to help you. Here are a few tips if you want to get a headstart on getting the most out of your tax plan.
1. Separate Personal and Business Accounts
If there’s one thing you should do before you even begin your entrepreneurial career, it’s to make sure that your personal and business accounts are kept separate. This will make trying to disentangle what is being taxed a massive headache. In general, keeping these books separate is just plain good business practice.
2. Document Everything
Once you have your business and personal accounts separate, make sure that you and your employees get in the habit of noting down every possible transaction in the books. Every source of income needs to be noted down to be taxed appropriately. Every expense needs to be tracked just as vigorously for potential writeoffs.
3. Understand Your Writeoffs
Many startups go their entire existence without realizing the full scope of tax writeoffs available to them. Tax deductions can be significant for your tax strategy, but you need to know about them to make use of them. It would take forever to list every tax benefit, but they can range from bank fee writeoffs to marketing writeoffs. If your business is very young, you can even get writeoffs for your home office space! When doing your tax planning, make sure to search out every possible advantage you can get for your company.
4. Consider Your Legal Structure
At some point, you’re going to have to decide what legal structure your startup will take. Will you be an LLC or a C Corp? This can significantly affect how your taxes are managed. For example, in a C Corp, owners and shareholders are taxed separately from the company itself. Before you decide on a legal structure, make sure to research what this will mean for your taxes.
5. Don’t Forget Payroll Taxes!
In many places, if you fail to file your payroll taxes, it can be a federal crime. Ensure you understand what your payroll taxes will cost you, and pay them right after you issue payroll checks. Also, remember that individual states and other sub-national entities will often have their own payroll tax rules, which you should understand in addition to the federal tax rules
6. Hire a Tax Professional
We said it before, and we’ll repeat it. Taxes are complicated. A finance professional who has built their career around accounting services will be the best asset you can have when navigating federal and state, and local tax systems. The sooner you get them on your team, the sooner you can start reaping the rewards of their business services.
Need a Tax Professional In Your Corner to Help Reduce Your Taxes?
Are you deciding that you want to get started on figuring out your tax plan? Want to talk to Tax Professionals as soon as possible? Get an expert tax strategist in your corner.
At Punch Financial, we specialize in providing high-growth companies with a modern accounting experience. Instead of hiring an accounting and bookkeeping team at great expense, you can outsource your financial back-end to a firm with proven results for a fraction of the cost. Each account is assigned a staff accountant, a Director, and a CFO.
Our mission is to help you streamline your back-office and provide you with actionable data and reduce your overhead. Let’s connect to give you a customized quote and free consultation. You have nothing to lose but so much to gain.