Starting and running a small business can be difficult. There are thousands of things to consider when starting out, including what type of corporate entity to form, what assets to purchase, who to hire as part of your staff, and more. Some of the things that many people forget to consider are the tax ramifications of their choices.
Many CEOs and founders of startup companies are not tax experts. Part of running a successful business is delegating tasks to those with the skills and experience to handle the problem. Hiring a Sacramento tax lawyer for your startup can help you run your business in a way that will help you maximize your tax deductions, reduce your tax burden, and increase your profits. For a free consultation on your case, contact the tax lawyers at the NewPoint Law Group today. Our number is 1-800-358-0305.
Tax Issues for Startups
Deciding what type of corporate entity your business should be is one of the first tax decisions you will make. There are multiple types of business that your company can be, from a simple partnership to a limited liability partnership (LLP), a limited liability corporation (LLC), or a corporation (of which there are also multiple types).
In a partnership, you and the rest of your partners are taxed directly for your business’ gains. This means that you pay your business’ taxes directly, sharing any profits with your partner as though you are the business. This has other effects, such as making you personally liable for any issues you or your partner causes.
Alternatively, you may be able to establish a limited liability partnership or limited liability corporation. This helps limit the liability you face for your partner’s errors. It also allows you to shift the tax burden, so that non-managing partners may be insulated from the risk.
Establishing yourself as an LLC or a corporation often places your business as a separate person, for tax purposes. This helps you insulate yourself from the taxes your company faces by making the business its own taxpaying entity.
Taxes for New Businesses
Your business may face taxes you never considered when starting a business. For instance, any company with employees needs to pay payroll taxes, and any company that sells certain products or services must pay sales tax. However, there are also plenty of tax benefits you could face.
In most cases, any necessary business expenses are deductible. This means anything you spent money on to help your business, as an ordinary expense (e.g. computers or office supplies) might be tax-deductible. When outfitting your startup with equipment, it is important to consider the fact that you can write-off many of those purchases. This means you may not be stuck using 5-year-old computers or skimping by using free software. If the expenses are “ordinary and necessary business expenses,” you can usually deduct them.
In addition, the wages you pay your employees are often subject to a deduction as well. Paying your employees is an ordinary and necessary business expense, which makes many of their wages are tax deductible as well.
State and Local Taxes for Businesses
It is important to remember that both the federal government and the California government receive taxes. Both business and individuals have to file both types of taxes, and failing to do so can mean audits, tax penalties, and interest. On top of that, you may need to pay local taxes to the municipality or city your business operates in.
Many business owners forget state and local taxes, and they end up paying more than they may need to. Finding tax breaks and tax incentives for local and state taxes can help reduce your company’s overall tax burden.
Audit Defense for Startups
If your business faces IRS investigation, it can place a hold on many of your day to day activities, hurt your reputation with other companies you do business with, and potentially hurt your own finances as well. Most IRS investigations come in the form of an “audit.”
An audit does not always mean you are in trouble. Some audits are issued because your tax returns deviated from the expected “norms,” and the IRS’ computer algorithm flagged you for audit. In other cases, you may be flagged for an audit because your investors or partners were being audited, and the IRS wants to make sure issues are not wide-spread. Alternatively, audits could result from non-payment or underpayment.
In any case, an attorney can help navigate the audit and defend you before the IRS. We can help negotiate with the IRS, prove your taxes were correct, and help reduce any unpaid taxes or penalties.
California Tax Attorneys for Startups
If you own a startup or are considering opening a business, talk to a tax attorney. Other lawyers that you work with may not look specifically at the tax concerns, but our tax attorneys will. Since hiring in-house counsel for a startup is likely unfeasible, contact a law firm like the NewPoint Law Group. Our Sacramento tax attorneys help startups by working with you to help plan taxes, maximize deductions, and help secure your business from IRS investigations. For a free consultation, contact our law offices today at 1-800-358-0305.