Although you may have the grasp on what you want your business to be and how to execute most of the finances, you are likely going to need some help with the tax aspect. There’s a lot to know about taxes when you start a company, so here are some tips to help get you off the ground:
Establish a tax advisor right away
You have enough to worry about with your business as it is. Even though it may not be in the budget right away, it’s important to have someone work exclusively with your company’s taxes as soon as possible.
Having someone on board (even just an advisor with another company) whose main focus is your taxes, it will save a lot of hassle. Just make sure to let this person (or team) know of every expense for your startup. Even hiring a tax advisor can be a tax deduction all on its own.
The highest amount that can be deducted is $5k for startup costs that exceed $50k and $4k for anything under that mark. There is something you need to watch out for, though. The IRS states that the deduction wanes for each dollar that is spent over the $50k. For instance, if you spend $53k then there is a maximum of $2k in deductions.
In other countries the rules can be more lenient. For example, in Canada you can have any business related expense deducted from taxes. If you advertise your startup in Canada, they allow for a 100 percent deduction. This makes Canada a more desirable place to start a business in terms of tax relief.
So if you plan on hitting the ground running and spending a lot of money to do it, then you can forget about saving any money on deductions. Keep a log of everything that you are spending money on (keeping receipts, too) so you know when you are getting close. Once you get close to the $50,000 mark, it is time to slow down on expenditures unless it is absolutely necessary.
These expenses are only counted towards startup costs during the planning stage of the business. Once it is operational, you can no longer qualify for this deduction (of that tax year). This is important to remember when you file taxes online or through the mail.
What constitutes a deduction?
Basically anything you can think of that money has been spent on is considered to be tax deductible for startups. This includes marketing, loan interest, training workers before opening, consulting, gas, etc.
As long as operations have not started, it’s important for tax reasons to keep track of every dime that was spent. This even includes hiring a legal team to support your business, as that is counted towards being an organization cost.
There is also a Health Care credit that you can qualify for if you have fewer than 25 employees and pay for more than half of the premiums of these employees. It can net you 35 percent in deductions and every penny counts.
Open a bank account for the business.
Although there may not be a large amount to put into the bank account for your startup, it’s vital to make one anyway. Any money that you have dedicated to spending on your business, place it in this account before spending.
It will help you keep track of both personal and business expenditures so you don’t claim the wrong items for deduction. If you are asked questions about certain transactions, you can get statements that show it came from your business account. This can come in handy to avoid misunderstandings with the tax man.
There are many details to know about taxes when opening up a new business, but hiring a good tax advisor will make sure you are prepared. There’s no value for experience, so don’t be afraid to spend good money for the best. With the right team in place, your company should run smoothly.