Common Tax Mistakes for Startups to Avoid!

Posted by RNS Associates on August 2nd, 2019

When you are just setting up your business, or in other words, when your business is in start-up phase, you are much more worried about things like if you will be able to find the right investors for your business rather than preparing yourself for the tax season.

Many people think that they will file their taxes at the end moment. But the truth is that waiting till the last minute can cost you much more than you might have ever thought of. This can saddle you up with some expletive-inducing fines and at the worst, even legal penalties. However, if taken care of properly, these will turn out into opportunities to lower you tax bills.

In this post, we are going to discuss some of the common tax mistakes that start-ups make which can be avoided so that problems are not faced in the end. Read the complete post to know!

1. Selecting the wrong legal identity

Make yourself aware of the tax laws associated with the legal entities for your business and avoid paying huge amounts of tax. You can choose any of the legal entity for your start-up like the sole proprietor, partnership, or some form of corporation.

2. Not aware about your tax obligations

You have to understand your obligations towards many kinds of taxes once your company starts earning revenues, and you have to take care of these taxes on a regular basis to avoid yourself from paying a myriad of tax at once. The majors that you might be responsible for are state and federal taxes, payroll tax, license fees, etc.

3. Not taking a professional help for tax

Once your start-up gets established, make sure you find a tax advisor and follow all the regulations. Your main responsibility is to get your organization fully operational — to focus your energy on creating your product, forming strategic relationships, and other big-picture ideas. Taxes are the last thing you would want to think about. It’s beneficial and essential that you hire a tax advisor to accept liabilities and to make sure you follow all the rules and regulations.

4. Combining your professional and personal finances

Always separate your personal finances from your business ones. By doing this, you avoid two things – first, the confusion created because of this; and second, lawsuit against you to pay additional taxes and stripping off your company of its corporate stature.

5. Not deducting your business expenses

Keep track of all of your ordinary as well as necessary business expenses. This saves you the time to dig up the old receipts at the time of filing your ITR.

6. Not using the right accounting system

You need to figure out a way to track all the financial transactions. This includes expenses to revenue earned, billing, and all financial obligations. There are many tools and accounting systems to help you out with this problem like Quickbooks, and other softwares and cloud. You need to choose the best one for you that suits your needs and requirements.

7. Not paying your quarterly taxes regularly

You should make sure that you pay your quarterly taxes before the due date. During the first year, you are leveraged. But after that, you are on the hook and you need to pay attention to that. Not paying your quarterly taxes regularly might increase your tax problems.

Contact RNS Associates for ROC work in Dehradun and CA in Dehradun!