Tax Planning For Start-Ups
Tax planning may not seem like the most exciting part of starting a new business, but down the road when it saves a lot of money, the payoff can be exhilarating. New entrepreneurs who skip planning could get caught in the taxman's net. Some budding businesspeople don't realize they may have to file a tax return, even if they've not yet made a penny in revenue or even started formal operations. New entrepreneurs, who might be working out of their homes, also have to be careful to document tax-deductible expenses. If businessperson is planning to write off car and cellphone expenses, for example, business versus personal uses of these items will need to be carefully tracked.
And many new business owners put off tackling tax issues because they are daunted by the topic and busy trying to get their products or services to market. About one-third of the start-ups in my practice don't become clients until after the tax year ends, giving us fewer options to cut their tax bills.
In defense of new business owners, it's not easy to navigate the maze of federal, state, county and city tax rules when starting out, especially in situations that make it difficult to estimate how much income will be generated. It's very difficult to plan tax-wise for your first year because you don't know really where you are going.
Different tax rules apply to different kinds of start-ups. And to make matters more confusing, States tax law doesn't always follow the federal tax code.