Taxes are notoriously a pain point for most small businesses and startups. With compliance requirements constantly changing and new tax code being introduced, it’s a challenge most startup founders don’t have the time for– so they smartly hire a professional. However, in order for your CPA to maximize his or her value come tax time, you need to be following these 3 Crucial Startup Tax Tips to make sure you have everything in order. Failure to do so will result in increased fees due to extra work incurred by your CPA.
1. Accurate Bookkeeping
In order for your CPA to get you the maximum tax savings, he or she needs to be able to rely on sound bookkeeping on your end. If your CPA is constantly having to ask you what certain accounts are, or asking for explanations regarding discrepancies, it’ll only add to your final bill. Another commonly overlooked bookkeeping blunder is failure to appropriately classify income by state, which makes calculating state taxes owed much more of a headache. If bookkeeping isn’t your thing, consider hiring a professional who is willing to handle this for you. Your CPA may even bundle bookkeeping and tax services as a package deal, so speak to him or her about the possibility of such arrangements.
2. Maintain a Dedicated Bank Account
If you read my precursory guide on Accounting 101 for your startup, you already understand the importance of having your personal and business expenses entirely separate. If you don’t have solid bookkeeping, and your CPA has to wade through hundreds of co-mingled banking transactions, you’ll end up paying more in the long run. At a minimum, you should have a bank account for business expenses and receipts. Most companies will also want to have a small business credit card to handle unexpected expenses. Again, this should be strictly for business and should never be used for personal expenses.
3. Keep and Organize Receipts
Many small business owners and startup founders fail to see the importance in keeping receipts. However, as a rule of thumb, the IRS wants small business owners to keep receipts for any transactions in excess of $75.00. As a matter of best practice, you should also get in the habit of keeping receipts for ANY transactions that are done in cash, as both these practices will be extremely beneficial in the event of an IRS audit. A great way to keep all of these receipts organized and centralized is to use Expensify, a mobile application designed to keep startup founders and small business owners organized.