How to File Your Startup Taxes the Right Way

How to File Your Startup Taxes the Right Way

Written by 
Pilot Team
February 28, 2023
How to File Your Startup Taxes the Right Way

For most startups, tax season is stressful, especially when meeting tax deadlines. That’s why turning to a tax accountant for help makes sense. But have you ever wondered what makes a good tax accountant or what you should look for in a tax accountant?

We’ll answer these questions, and more, as we dive into the ins and outs of direct and indirect expenses, the US R&D tax credit, LLC filings, and what taxes you should always file.

What Do You Look For in a Tax Accountant?

When it comes to finding a tax accountant, there are a few things to consider. First, ensure they are familiar with your industry and company - this will help them understand the types of deductions available to you and how those deductions can lower your tax bill.

Secondly, look for an accountant with experience working with businesses similar to yours—not just individuals or small businesses like restaurants or shops; larger corporations may require specialized knowledge to meet their obligations and save money on taxes and maximize any deductions available under the law.

Third, ask if they can provide references. Ask for referrals from other clients to see if their services worked well for them. Trust is critical for a successful relationship with your tax accountant, so it is worth hearing from others who have worked with the accountant you are evaluating for your business.

Finally (and perhaps most importantly), make sure whoever does your taxes understands how important timeliness is when filing returns! It would help if you had someone who could meet deadlines without sacrificing accuracy or quality workmanship. Remember, an accountant who can help you save money on taxes and file your tax returns on time is invaluable.

How Do You Prepare Your Business for Tax Season?

For starters, make sure you have all the necessary documents and information. For example, please keep track of your receipts and keep them organized. You should also have a system for filing away important documents like contracts, agreements, business licenses, etc. Once you find a filing system that works for your business, stick to it. Also, keep track of your finances to ensure you have enough money to pay for everything. It’s also essential to keep your business separate from your finances, so try not to dip into any money in the business account (unless it’s an emergency).

Then get a good tax accountant, even if it means paying more than usual (it’s worth it).

How Do Remote Employees Affect Business Tax Obligations?

There are two types of business taxes: payroll and state income tax. People who work remotely can affect your payroll taxes and state income tax obligations. Generally, if a company has employees working in a state, the company should file payroll and state income tax returns in the specific state, as having an employee in the state can create nexus. Nexus is what establishes a tax filing requirement in a given state.

So, what about remote employees?

If you live in California and hire remote employees who work out-of-state or internationally, there may be some complications concerning these two types of taxes because they aren’t always legally required based on location alone. Rather than where someone lives or works at any given time during their employment cycle (like most people think), there are specific requirements surrounding payroll and state income taxes based on where companies have employees working within various states.

The laws surrounding this are complicated and can vary from state to state, so employers must know their requirements and obligations to comply with all applicable regulations.

What Are Direct and Indirect Expenses?

You can directly tie direct expenses to your business and deduct them from your taxes. However, indirect expenses are not tax deductible, even if incurred while doing business.

Here’s an example: A company buys a laptop for $800, and the employee uses it for personal use half the time. As a result, the company can deduct $400 from their taxes because they bought it specifically for work purposes (direct) but not because the employee uses it partially for personal reasons (indirect).

How Does the US R&D Tax Credit Work?

The R&D tax credit is an excellent incentive for small businesses and corporations. You can use it to offset the costs of developing new products, improving existing ones, or conducting research. But there are some nuances that you should be aware of before filing your taxes this year.

The first thing to know about the R&D tax credit is that it’s limited to software development and wages paid in the US (or Puerto Rico). So, if your company does most of its research overseas—and many do—you won’t qualify for this benefit.

What Taxes Do Startups Always Need to File?

Federal and state income tax returns are the most common taxes you will file. Income taxes are based on the company’s net income; Federal taxes go to the federal government to enable them to provide services such as national defense, Social Security benefits, and Medicare. State taxes help fund local governments like police departments or public schools in your area.

Social security is a program related to the payroll tax that provides disability insurance benefits to qualifying workers who become disabled before retirement age (65 years old); it also provides survivor benefits when certain family members die while working under this plan. However, most employers must withhold money from employee paychecks each payday so these payments can be made on time every month throughout their careers until death occurs after retirement.

Local property owners may also have additional requirements, such as paying sales tax on any purchases made within those locations – this includes clothing items priced over $100 but excludes food items purchased at supermarkets located within city limits since those businesses already collect sales tax from customers before checkout counters close each night.

What Is the Difference Between Payroll and Income Tax?

You might be required to pay payroll and income tax when filing your taxes. Payroll taxes are what employers withhold from their employee’s wages and submit to the IRS on their behalf. Income tax is calculated based on the company’s l net income and then filed with the IRS by Tax Day or six months after Tax Day if the Company files for a six-month extension.

The main difference between these two types of taxes is that payroll taxes are withheld from an employee’s paycheck before they receive it. In contrast, income taxes must be calculated on your earnings by April 15th if you don’t file an income tax extension or by October 15th if you file for an income tax extension.

What Is the Difference Between LLC and C Corp Filings?

LLCs and C Corps are two different types of business entities. Both have unique tax filing requirements, but there are some critical differences between them to keep in mind.

LLCs are taxed as partnerships by default and therefore don’t pay taxes themselves; instead, the income passes through to its owners, who then report it on their income tax returns. LLCs with multiple members must file any forms with the IRS or state government.

On the other hand, C Corps are taxed as corporations and file separate forms with federal agencies (Form 1120) AND state agencies. This gives them legal personhood so that they can enter into contracts and hold property just like people do; however since these entities aren’t directly connected with any particular person anymore.

What Goes Into Filing Taxes Correctly?

Correctly filing your taxes means adhering to all of the rules and regulations that are in place for you as a taxpayer. It also means avoiding penalties and interest by accurately filing your income tax returns on time.

Interested in more information about startup taxes? Watch our webinar, Your Startup Tax Questions Answered, where Pilot’s seasoned tax experts, David Kelm, CPA, and Justin Wiguna, Senior Product Manager, have an engaging discussion on everything tax.

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