As opposed to salaried employees who have their income tax withheld from every paycheck, small business owners pay their own income and self-employment taxes through estimated payments to the IRS each quarter.
Understanding your estimated tax payments and adhering to IRS guidelines are vital steps in order to avoid unexpected surprises during tax season, and reduce penalties.
Tax preparation services
No matter whether your startup is bootstrapping pre-revenue or already profitable, it is critical that they understand all their tax obligations when operating a business. These responsibilities extend beyond income taxes alone and cover filing requirements specific to company structure and location – CorpNet’s free Compliance Portal makes managing these filings simple!
Maintaining detailed records throughout the year is one of the best ways to reduce tax preparation time, including using a dedicated business credit card and investing in user-friendly accounting software that monitors expense reports for accuracy. Doing this will significantly decrease filing time and allow you to focus on running your business instead.
Startups should take full advantage of tax credits that could save them money. Kruze assists seed and VC funded companies developing novel technologies in claiming the R&D Tax Credit, which could save up to $250,000 in payroll taxes.
E-file
Small business startups face various tax obligations. They must pay income and self-employment taxes such as Social Security and Medicare contributions. Furthermore, sales taxes may apply if enough transactions have occurred or they have physical presence within certain states; additional quarterly estimated payments must also be filed to avoid penalties.
These payments can be made using online tax software or the Electronic Federal Tax Payment System (EFTPS). They can also be sent by mail – postmark required by due date! Managing records, filings, and payments more efficiently through professional solutions will save time and effort while alleviating frustrations.
Startups often face complicated tax compliance challenges, including reporting foreign income on Form 5471 or GILTI for US citizens and residents who own ownership in a foreign corporation. Furthermore, NQSO must be reported on Form 3921 while contractors should file Form 1099 Miscellaneous annually.
Tax law changes
As you prepare for tax season, take note of recent changes that could benefit small business startups. One such change includes doubling of R&D tax credit for pre-revenue startups; this can assist them with innovation, commercialization and creating jobs which help advance our economy forward.
The Qualified Business Income Deduction (QBI) will offer pass-through owners a larger percentage of their earnings; however, its applicability is restricted for those operating a specific service trade or business (SSTB).
Another tax reform will double the immediate expensing limit for startup costs, making investment faster and production capacity increased faster, as well as helping reduce health care costs for employees of new startups. Finally, this bill will eliminate an outdated IRS reporting rule not inflation adjusted in over 70 years; saving both time, money, and frustration from business operations while strengthening American manufacturing while supporting local economies in rural communities.
Tax software
Tax software programs for small business startups and entrepreneurs can make filing taxes simpler than ever. There are countless online programs offering different features at various prices; some even provide free demos! For added peace of mind before making your choice, read professional and user reviews of each software program that interests you before making a purchase decision.
Most leading software programs use an interview-style interface that prompts you to answer questions about your finances and input them directly into appropriate forms. Other approaches use more traditional forms but may prove more complex for people unfamiliar with tax forms.
If you need assistance in navigating the tax filing process, consider investing in premium software like TurboTax or H&R Block. Both offer simplified walkthroughs, accuracy guarantees and on-demand support options; furthermore they may help identify deductions you missed by mistake and assist if an audit occurs. Financing solutions like business credit cards can assist in tracking expenses throughout the year while keeping personal and business expenses separate.