Do you understand the importance of choosing the right legal entity, fulfilling your tax obligations, hiring a professional bookkeeper, drawing a clear line between personal and business finances, deducting business expenses, delegating tasks to other people and performing adequate market research? If the answer is “yes”, congratulations because you are not one of those startups who keep making the most common tax mistakes. The reality is that, whether you own a startup or a large organization, the tax season still represents the most daunting time of the year because it has the power to overshadow all the excitement brought by running your own business. However, you do not have to let the IRS discourage you. Instead, you should prepare accordingly so that you greet tax season with confidence. In fact, you should be smart and find ways to defer or avoid paying taxes because it is more than possible to achieve this objective. Just look at real estate investors and their strategies including 1031 DST exchange, depreciation and long-term capital gains.
How to deduct legitimate expenses of your startup
When starting your own company, there are different types of business taxes that you have to bear. These refer to income and sales taxes, employment and excise taxes. The idea is that, as long as you have employees, you sell products or services, you operate a business including highway vehicle usage, paying taxes is a must. The good news is that, according to the tax law, you have the right to take tax deductions, which means that you can deduct legitimate expenditures if you comply with certain rules. More specifically, you must use digital recordkeeping solutions in order to track income and expenses, you need to establish a system or specific procedures in what concerns collecting and storing receipts, which represent a physical proof of those legitimate expenditures that can either be car-related expenses or capital expenditures, and you have to establish certain policies as well. For instance, if you do not have a corporate vehicle so you use your personal vehicle for business purposes, you can deduct the money spent on fuel.
Clever ways to reduce your startup tax bill
Since you own a startup, staying up to date with potential law changes in what concerns taxes is crucial. Reducing your startup tax bill or saving o taxes is more than possible if you adopt certain methods, which refer to contributing to a qualified retirement plan, accelerating deductions, choosing the right business structure, just as mentioned at the beginning of the article, because this will determine the amount of money you are going to spend on taxes, and adopting an “accountable plan”. It practically represents an arrangement that allows you to reimburse employees for using their car with the purpose of achieving company objectives. Another clever way that enables you to save on taxes involves contributing to the health insurance costs of employees instead of increasing their salary. Of course, this will advantage your staff as well. However, keep in mind that you have to work with a professional in order to defer taxes legally.