When you’re growing a VC-backed startup, getting the right startup tax help can be crucial—an otherwise great tax professional might not understand the intricacies involved.
Here’s what you want to look for and the questions you need to ask as you compare tax services for startups.
Tax professionals can include certified public accountants (CPAs), enrolled agents (EAs), and tax attorneys. But a credential doesn’t guarantee a good fit for every business. You also want to understand their experience and specialties.
Your tax preparer should have experience working with startups that are similar to yours in size, funding stage, business entity type, and business model. Your business’s entity type—partnership, limited liability company (LLC), corporation, etc.—directly impacts the tax filing requirements, so you want to be sure that you’re working with an expert for your specific situation. The tax return for a pre-revenue seed stage SaaS company is going to look very different from a direct-to-consumer ecommerce startup that has warehouses across the country.
For example, the filing requirements can vary depending on your business’s structure and location. Many startups are incorporated in Delaware as C corporations, which can require filing a Delaware annual report. But if the startup is based in California, there may be additional California state filings, or even city-specific filings. Companies that have a presence in multiple states may have additional state filing requirements (and in some states, a taxable “presence” doesn’t necessarily require any physical presence). And that’s not even a comprehensive list.
Tax preparers who regularly work with similar startups can guide you with confidence, as they know what the process looks like and how to avoid pitfalls.
You may also want to look for a tax preparer who has worked directly with companies in your industry. Similar to how your company structure and location can impact your tax return and filing requirements, there may be important nuances between industries.
Industry experience is also important when it comes to bookkeeping, and mistakes in your books can translate into added difficulties come tax time.
Tax prep companies that frequently work with startups should already be familiar with tax credits that can help save you money.
One example is the federal research and development tax credit (R&D tax credit), which offers up to $250,000 in annual tax savings to companies conducting qualified research activities in the US. Even pre-revenue businesses can benefit, as the tax credit can help offset payroll taxes. And there may be similar state tax credits that can increase your savings.
Many small- and medium-sized businesses miss out because they don’t realize they can claim the R&D tax credit, or they’re intimidated by the complicated claim process. However, an experienced startup tax help service can help you identify if you qualify and walk you through the process—or do it for you.
Once you’ve identified a few tax preparation services and accountants who you think you could work with, an interview can offer insight into whether they’ll actually be a good fit. Here are a few questions to ask as you consider a provider.
A few probing questions can quickly give you insight into a tax preparer’s communication style. You want someone who will answer your questions, but there’s no “correct” approach here as it comes down to personal preferences.
You may prefer to work with someone who will walk you through the tax preparation process step-by-step and explain the minutiae of specific tax credits or deductions (even if you don’t ask). Or, perhaps you’d prefer a quick high-level explanation without any additional details.
Companies that offer tax services for startups should be able to give you examples of the types of clients they generally work with, and their ideal client. These answers tie directly into the types of experience you should look for, which we explored above.
Every professional tax preparer is going to need your financial information to accurately prepare and file your tax return. Before you sign an agreement, you want to ask how they prefer to get your information.
Some of the tax prep process will be interactive, and you should be available to answer questions. But you may want to avoid becoming a go-between who has to send a stream of PDF and CSV files.
Fortunately, many modern tax preparation services can link directly to your accounting, payroll, and expense platforms to gather the information they need. And if you work with a company that provides bookkeeping and tax prep services for startups, such as Pilot, you don’t need to worry about anything getting missed during the transfer.
An audit can be scary, but less so if you have a partner on your team. Ultimately, the responsibility to provide documentation to back up the information in your tax return lies on your shoulders. However, a tax professional can help explain what’s being asked for, how you should respond, and the potential ramifications.
In short, the sooner the better. For companies whose fiscal year follows the calendar year, the tax preparers’ busy season starts in early February—and you don’t want to wait until the last minute to find help.
While you can get an extension to delay your tax-filing deadline, the extension doesn’t apply to tax payments. Many startups don’t wind up paying late fees and penalties as they don’t owe taxes. However, you might not know for certain until you’ve had someone prepare a preliminary tax return.
You don’t have to tackle your business taxes alone: learn how Pilot’s full-service tax prep can help.
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