Navigating business taxes as an entrepreneur is daunting, no matter where you are in your business journey. At Dunn CPA Firm, we understand the complexities and potential pitfalls that come with tax planning for startups.
Corporate Entity Selection
One of the first and most important steps in your tax strategy is selecting the proper business entity. Whether you choose a sole proprietorship, partnership, LLC or corporation will have significant tax implications. What you choose will depend on what type of business you plan to start, the number of people involved and your long-term goals. Each entity type comes with pros and cons, and choosing the wrong one for your business can cause unnecessary tax liabilities and complications later.
Minimizing Risks with Partners and Employees
While having partners in your business can reduce your workload with shared responsibilities, it’s often best to wait to take on a partner until absolutely necessary. If not managed properly, partnerships can become complicated and may lead to conflicts. In the same way, hiring employees too early can lead to employment tax liabilities that can be difficult to manage. Instead, in the beginning, it may be best to outsource work to contractors until you have proven your business model to be stable.
Making the Right Tax Elections
Being taxed as a C corporation or an S corporation, for example, depends on your business’s success, revenue and profit levels. This decision can significantly impact your tax burden. Consulting with a team like ours can help you navigate these decisions and optimize your tax position.
Staying Compliant
Failing to stay compliant can lead to severe penalties and create a burden that can negatively affect your business’s success. Many entrepreneurs neglect compliance requirements, either because of a lack of knowledge or because they don’t understand its importance. Because of this, it is important to regularly consult with your tax advisor and stay up-to-date with filing requirements.
Building a Strong Advisory Team
Especially as an early-stage entrepreneur, it is critical to surround yourself with the right group of advisors to manage the complexities of tax planning and compliance. A team of experienced advisors can offer you the guidance you need to make informed decisions and avoid costly mistakes. At Dunn CPA Firm, we are proud to help you build and maintain a solid foundation for your business.
Reach out to our team today
Effective tax strategies are necessary for any startup’s success. Making informed decisions, with the help of a team like ours, sets you up for long-term success.
Reach out to our team today for personalized advice and advice for your tax strategy.
Video Transcript:
Startup business’ tax strategies starts with the entity selection. It depends on what type of business it is and how many people are involved, and then the next one is in excess, where are you operating: which states, which cities or counties? And you want to try to minimize that, usually, to keep things simple. The number of partners, partners are huge risks. So anytime you can avoid partners, usually it’s better unless you really need them, unless there’s a real synergistic draw between the two partners to keep it together. Otherwise, it will fall apart pretty quick. Same with employees. Try not to take on employees early. Do the work yourself. Outsource the work to legitimate contractors until you know the business model is working before you start incurring all these employment tax liabilities that you can’t get out of. And then once you create these entities, then you have tax elections to make. How do you want those entities to be taxed? And it just depends on how much, how successful it is, how much money it’s making, how much money it’s losing, where can you use the losses. It’s all stuff we can easily help with.
But those are all big mistakes that a lot of startups make when they don’t surround themselves with the right little group of advisors because they don’t even know these issues exist out there. A lot of times it’s so bad, they don’t even file for three years or five years. And then they come to us and, oh, my gosh, here is such a big mess to clean up. But the other thing is to keep it simple. So when you go to a competent professional firm like ours, one of the big advantages is we’re going to help you keep it simple. So it’s really easy to get your small business to be super complicated. And you don’t want that. It’s almost like a natural step. You create the business, you overcomplicate it, and then you have to have the experience and knowledge to step back. And, okay, now I see the detailed way to do it. Now, how do I do it the most simple way possible? And it’s honestly, it’s like that for as long as you can keep it that way, past the micro business stage to the larger small business stage. It’s always about trying to keep it as simple as possible and knowing how to do that.
And that’s what your group of advisors is for. And then another trick is to just be in compliance. So as I mentioned, a lot of times people are just out of compliance. They just didn’t know they had these compliance matters to take care of or they knew and thought it was no big deal. They’ll get around to it later. They never do. And it brings them down or it creates such a huge burden that makes it much, much harder for them to find success.
