Tax filing season is officially here. If you haven’t filed your taxes yet, trust us, you aren’t the only one. Most founders would prefer to focus on their business rather than diving into the dullness of tax forms and filing deadlines. Fortunately, there are a few steps you can take to get your startup’s taxes completed on time and with as little disruption to your business as possible.
Here are four tips to consider:
Get Professional Help
Seek out a qualified tax professional. Once you own a business, filing your taxes won’t be the same as when you were an employee. Qualified tax professionals can prepare your tax returns, answer specific questions, and provide personalized advice for your situation. Not only can they help you stay on track with your filings and payments, but they can also minimize the burden of taxes on your business.
Start as early as possible. Don’t wait until the day before your filing deadline. The things you do now can impact the taxes you owe later, so if you can, start now and find a tax professional who has experience working with startups or other businesses in your industry.
Stay Organized and Keep the Receipts
Make a plan to gather and organize your documents. Check the tax forms you’ve already filed for accuracy and put all your documentation in one place. This will minimize the back-and-forth required between you and your accountant.
The best and most efficient way to file your taxes is having the proper documentation. It’s essential to prove both your income and expenses. Keep the receipts! A tax professional can recommend appropriate software for tracking your income, expenses, and, in some cases, time. Maintaining complete and accurate records now can save you time, money, and headaches in the future.
Know Your Deadlines - Some Key Dates
Most people know about the typical April 15 deadline for individuals to file their U.S. federal income tax returns (or request an extension) and pay their income taxes due for the prior year. It is important to note that on March 17, the Internal Revenue Service announced that the federal income tax filing due date for individuals for the 2020 tax year would be automatically extended from April 15, 2021 to May 17, 2021.
Businesses can have different filing requirements and deadlines. If your startup is classified as a U.S. partnership or S corporation and uses a calendar tax year, the deadline to file its 2020 U.S. federal income tax return (or request an extension) was March 15, 2021. If your startup is classified as a U.S. C corporation and uses a calendar tax year, the deadline to file (or request an extension) is April 15, 2021.
Remember that your startup may have other tax compliance deadlines, including requirements under state and local law. Also, keep in mind that your startup may have tax obligations throughout the year, not only during the regular tax filing season. For example, you may be required to make estimated income tax payments and remit payroll tax withholdings throughout the year. Consult your tax professional for more guidance on your particular tax compliance deadlines.
Consider COVID-19 Issues
2020 was not a normal year for businesses or taxpayers. Many founders and employees have been working remotely and may have changed the state where they live or work. To make matters more complicated, each state has its own rules governing how it taxes its residents, workers, and businesses.
In addition, new tax laws were passed to respond to the economic hardship that the pandemic has created for businesses and families. For example, new payroll tax credits (for which some startups may be eligible) were created for 2020 and 2021.
Check in with your tax professional about how COVID-19 affected your business to see whether that might impact your tax situation for 2020 and 2021.
Disclaimer: This is intended only as general guidance for startups. Every taxpayer’s needs are different. Please consult your tax professional.