Building a startup is like building a house; the stronger the foundation, the better chance it will remain standing for years. And mastering the tax fundamentals of your new business is a big part of building that foundation.
That’s why today’s blog post is so important for new business owners. We’ll review those fundamentals and include plenty of helpful links to help you dig deeper into the subject.
Fundamental #1: Consult with a Tax Professional
If you haven’t done so, seek out the counsel of a good CPA or a tax advisor. Picking the right one takes some effort, but once you do, they become an indispensable strategic partner. That’s because they can help you avoid serious problems while helping you take advantage of opportunities you would probably never see on your own.
Internal Revenue Service laws change like the weather, and keeping up with them is nearly impossible for a busy entrepreneur. But a CPA knows the tax code well. So, they can help you take advantage of any changes that reduce tax liability.
That can lead to significant revenue that stays in your account.
A CPA can also help you understand what deductions you can and can’t take. This is a sore subject for many business owners who get audited for taking deductions that weren’t legal. Not fun.
Understanding the best way to use depreciation and amortization is another task a tax professional can take off your plate. This is especially important because these can be applied to many startup costs, reducing tax liability in the early years.
So, a good CPA is like a good lookout, helping you to be proactive and reactive simultaneously.
Fundamental #2: Choose the Right Business Structure
We’ve written extensively about picking tax structures in the past. But it’s always worth mentioning because it can mean the difference between success and failure.
Discuss with your CPA whether you should establish a sole proprietorship, LLC, or a corporation initially.
But it’s also wise to talk about future plans. Your CPA can advise you on changing your structure as the business grows. They can also help you plan how to scale your business while it’s just an idea in your head.
Fundamental #3: Keep Accurate Financial Records
The task of tracking income, expenses, receipts, and invoices will always be the business owner’s responsibility. However, a tax professional can help you create the best system for doing so.
And they can also help you use data from that information to streamline processes that will increase your bottom line.
Fundamental #4: Use Retirement and Health Savings Plans
Retirement plans can be a significant tax benefit for you, your employees, and your business. Look into the various Individual Retirement Account options and consult a tax professional about which ones you can legally use.
Of course, having a health plan for you and your employees is always helpful. Health Savings Accounts and Flexible Spending Accounts can fill the gap until you can afford to offer other options. Until then, HSAs and FSAs can provide significant tax benefits for you and your employees.
The Bottom Line
It’s easy to push tax planning to the back burner when starting a new business. There’s so much else to worry about. But taking time to get the right tax professional and the right plan can reap huge rewards, indeed!
So, take the time to get this step right; your business will be better off in the long run.