During business formation, some business owners consider other factors, including target market, employees, growth strategies and so on, but pay less attention to taxes.
However, taxes are crucial in small business. Thus, it will help to consult a tax professional before launching your business. Here are just a couple of the many reasons to be concerned about taxes when starting a business:
Not filing tax returns or paying taxes may lead to penalties. Filing late or filing incorrectly can also lead to such a consequence. When you learn about taxes, you will better understand how much you need to pay in taxes, when you need to pay your taxes, and when you need to file the various types of tax returns, all helping to save you from heavy penalties.
Understand tax deductions
A business is allowed to deduct its ordinary and necessary expenses, and in some cases the tax law allows special credits. Not understanding proper deductions and how to properly substantiate deductions may result in high tax obligations, or a disallowance of deductions or credits if ever audited. Learning about tax deductions helps you know which expenses can be declared when filing returns and when you can start deducting. Further, this information can help you keep records of every cost, including receipts helping to ensure taxes returns are properly prepared and all entries are properly documented.
Know the tax implications for your workers
If your company has different types of workers, such as on-site employees, remote workers or independent contractors, you need to understand the tax implications of each. Most workers will be considered employees. Proper worker classification is important, and an area of enforcement priority for the IRS and California Employment Development Department. Misclassification is a common and costly mistake. It is important to clearly understand when you can and cannot classify a worker as an independent contractor.
Tax issues are common with startups. Understanding the many tax reporting and record keeping requirements from the beginning can help save a lot of time and money down the road.