Startups face many challenges as they attempt to launch successful businesses that yield a profit, increase the workforce, and produce income for their owners. Of all the obstacles business startups encounter, perhaps the most feared is taxes. In fact, taxes seem so daunting that some entrepreneurs avoid them until the last possible minute. Bayou Bookkeeping & Tax Services hopes owners will find this list of five common tax mistakes helpful.
1. Selecting the Wrong Business Structure
Each business entity structure brings its own tax obligation. C-Corp, S-Corp, and LLCs all function and impact the business differently. Additionally, they directly impact your personal tax filing as the owner. If you don’t have a clear understanding of the different business entities and how each impacts your business, contact us to help you determine which structure works best for you.
2. Intermingling Business and Personal Funds
Scrappy startups and the entrepreneurs who launch them frequently make cash infusions and cover costs on behalf of the business. Often, owners are pulled in so many directions that they struggle to keep a clear separation between their personal finances and business. This creates a mess down the road. Ensure separate funds remain separate, and you will avoid one of the most common tax mistakes startups make.
3. Not Making Quarterly Tax Payments
In the beginning, startup owners don’t know what to estimate for quarterly taxes. The first year of business generally provides the baseline from which you estimate taxes going forward. To avoid issues, keep records of all your upcoming taxes and set aside money to prepare. After all, it’s better to be off-target with estimated taxes than empty-handed.
4. Not Tracking and Documenting Expenses
Improper expense tracking and documenting is one of the most common tax mistakes startups make. Well-intentioned owners get sidetracked and end up stressed when they can’t find receipts. Improper tracking and documenting results in the loss of claimed expense deductions because they can’t be proven. It’s not as easy as you think to rebuild a year’s worth of mileage from scratch. The bottom line is that you can’t claim what you can’t prove through documentation.
Fortunately, technology offers a variety of solutions in this area. Interconnectivity between banks, accounting software, and imaged receipts sync your activity in real time. Additionally, most transactions today are electronic, which provides an easier “paper trail” than hard documents and receipts. For this reason, this common mistake is nearly entirely avoidable as long as you use the right apps.
5. Not Hiring a Professional
Finally, of all the common tax mistakes that startups make, failing to hire a professional accounting and tax firm can be the most costly. If you get behind on taxes and your books are inaccurate, you could find yourself in hot water with the IRS. Avoid this mistake by being proactive and hiring the professionals at Bayou Bookkeeping & Tax Services in Baton Rouge. We’ll do what we do best to free you up to do what you do best. Whether taxes, payroll, bookkeeping, or financial reporting, you can be confident we’ve got it covered! Contact us today at (225)442-1137.