The biggest challenge for entrepreneurs is financial planning because cash constraints can put their business off track. You will probably understand the concern if you are at the starting stage of the business. Every penny saved matters as you can reinvest it for your startup’s growth. When it comes to saving money, there are several ways you can do it. Adopting a minimum viable approach is a good way while you can also maintain a tight grip on your expenses.
A lesser-explored approach is to save up on your taxes, which can bring considerable savings. However, this is something you may overlook simply because taxes are confusing. But capitalizing on tax benefits made available to entrepreneurs is a smart move. Finding tax breaks that can increase your cash flow can make all the difference. Here are some useful tax facts that young entrepreneurs should know.
You can deduct the cost of startup launch
Starting a new business is a humongous task and can be expensive as well. There is a lot to do, from compiling market and competitive research to building buyer personas and promoting your product or service. Further, you will have to establish an office and onboard employees. No matter how stingy you are with your resources, you will have to spend a lot of these aspects. The good news, however, is that you can deduct these capital expenses while calculating your tax liability. It is important that you understand the expenses that come under the coverage of startup costs. These include the cost of license and permits, fees paid for accounting or legal services, rent for office space and equipment, employee costs, market research and advertising expenses, and cost of financing.
You can write off certain expenses (home and car)
Another good way to get a tax break for your startup is by writing off certain legitimate expenses as deductions. For example, home office deduction is a smart way to save on taxes if you operate from your home rather than a commercial office. These expenses include repairs, insurance, mortgage interest and utilities such as internet service. The value is calculated for the percentage of the living space you dedicate to work. Additionally, you can claim a deduction for using your car for business operations. The deduction may be based on the actual car expenses (including gas, insurance or repairs) or the standard mileage rate of the IRS. The only caveat that you need to adhere to keeps your personal expenses separate from business expenses.
Adherence to deadlines is important
Just because you are starting your business does not give you a valid reason to miss the tax deadlines. In fact, entrepreneurs need to be extra careful about filing returns on time so that they can avoid issues with the IRS. Being prepared well in advance is the best approach. You can seek advice from a tax attorney about the kind of entity you should form because it has direct tax implications. The professional can also help by offering a solution for unfiled tax returns in case you happen to miss the deadline. Further, they can represent you in case you expect an audit notice or face any other issue with the IRS. Collaborating with a professional keeps you stress-free as they look after your tax concerns so that you can focus fully on your business.
Plan well to avoid end-of-year surprises
Another key fact that young entrepreneurs should know is that they should plan well in advance to avoid any unpleasant surprises at the last moment. Paying quarterly taxes is a smart move as it helps you avoid a massive bill at the end of the year. This is particularly vital for startups because any big expense can topple you off-balance and even spell doom for your business. Further, it can create a major bottleneck in the cash flow of the business for the entire year ahead. As a part of tax planning, you can even open a separate savings account right at the start of the year. Keep depositing small amounts for clearing your tax bill easily at the end of the year.
As an entrepreneur, being smart with your taxes can take you a long way ahead. Awareness of the tax norms is important and so maintaining your documentation as you will need them as proof while filing your taxes. Additionally, you need to be one step ahead of the deadlines. More than anything else, availing the services of a seasoned tax lawyer is crucial as it helps you get helpful guidance and complete coverage from all kinds of tax issues.