One of the most common problems we see from startup founders that are first moving off from DIY accounting is a wide range of “personal transactions” being made with the business accounts. This is known as “commingling your books” and is a huge no-no as well as one of the most common ways businesses find themselves on the barrel end of an IRS or state audit.
They say “in this world, nothing is certain but death and taxes.” Well, we’re not sure if we hate or love to break it to you, but it turns out the latter is not as certain as the former, at least when it comes to business taxes.
If you’re just getting started as a business, filing taxes may not be the first thing that comes to mind. Some businesses can get away with this (for the first year or so) and others cannot—and things can get expensive if you fail to meet your tax obligations from the start. Follow along to see if your new business comes with a side of immediate tax filing responsibilities.
Whether on an individual level or as a business owner, every living, breathing citizen or resident of the United States of America has some familiarity with federal and state taxes. The mission of the Internal Revenue Service is to "provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all." This is why we must file taxes annually on our income each year.
While the Research and Experimentation (R&D) Tax Credit can apply to companies of all sizes, 2016 is the first year that certain companies can elect to apply the credit toward their payroll expenses. This is a big deal for startups, as the payroll offset was put in place to benefit companies that are not profitable and can’t use the credit to lower their income taxes.
Business owners are often surprised to hear that January and July are the two busiest sales tax months. Most Americans think “tax deadline,” and their minds immediately jump to the March and April income tax deadlines. These dates are so ubiquitous with “taxes” that many companies even offer Tax Day freebies like donuts, coffee, and ice cream to ease the nation’s collective pain.
But sales tax is a whole different animal. January (at the end of the calendar year) and July (states have a June fiscal year-end) are such busy sales tax months that we’ve dubbed them each a “Sales Tax Perfect Storm.”
I recently overheard a casual conversation between two of my friends from inDinero’s tax team in the breakroom. Their conversation was animated, and I kept hearing the term “K-1”—naturally, I assumed they were talking about a new Star Wars character. But boy was I wrong...
I learned that the Schedule K-1 is not a new imperial droid, but can be just as villainous in the eyes of many small business owners.
There are two reliable tactics to avoiding tax penalties: having a stable year-round accounting system and being on time. In this article, we’ll focus on the latter to help you build a simple but structured 2017-2018 calendar for both your business and personal tax returns that can help you keep up with your filing responsibilities and avoid paying more than you have to when you file your 2017 tax return.
Many entrepreneurs get their business off the ground as a limited liability company (LLC).
This can make a lot of sense if you are the single owner of a company or if you only have a few partners. Operating as an LLC gives business owners flexibility.
From a tax perspective, an LLC couldn’t be better: The business’ income is treated as the income of the owners. That’s right—you don’t pay separate business taxes if your company is an LLC. Instead, the company passes taxable profits and deductible losses through to the owners, who are all considered partners by the friendly folks at the IRS.
Pretty straightforward, right?
But there may come a time when you need to convert your LLC to a C Corporation. There are a few indicators that you should think about converting to a C Corp.
You’re a startup CEO. You’re running your business fast and lean. Getting your company’s financials cleaned up and organized is on your to-do list, but so are a thousand other things. You’ll get around to it—just as soon as you secure the loan that will help you scale up.
I hate to break it to you, but as long as your financials are a mess, that funding is going to stay forever out of your reach. At Lighter Capital, we field a lot of loan applications, and the number one reason we reject potential borrowers is that the entrepreneur is unable to produce financials. And we’re not the only ones who feel this way.
Over the course of your life, you’ve probably known someone who holds on to all their receipts, no matter how old or trivial those receipts may seem. Maybe it was your grandfather and his shoebox. Maybe it’s your mother and her filing cabinet. Maybe it’s you and that overflowing desk drawer.
While the practice of saving receipts can verge on obsession, startups have good reasons to retain and organize those little scraps of paper with care. Receipts help your business keep track of expenses, so you can provide proof of purchase for any future exchanges or claims under warranty, understand what your organization is spending too much money on, reimburse employees when necessary, and, of course, deduct everything you possibly can on your taxes.