You’re finally taking the plunge and starting that business you’ve dreamed about for years. Congratulations are in order. So is a lot of hard work.
One of the tasks startup owners find challenging is navigating the vagaries of the ever-changing tax code. You’d do well to consult a full-service accounting firm that includes business tax preparation among its services. You can deduct the expense as part of your startup costs, and your accountant’s expertise in areas like business tax write-offs can pay for itself in savings and peace of mind.
Whether you outsource your tax services or go it alone, there are some business tax basics every fledgling entrepreneur should be aware of.
Choose Your Business Structure
A would-be business owner must first decide how to structure their company, a choice that significantly impacts your taxes as well as how much of your personal assets are at risk. Potential structures include:
- Sole proprietorship
- Limited liability company (LLC)
Each structure has its own distinct tax rules—as well as particular tax forms—that apply to the business, its owner(s) and any employees. If you aren’t sure what structure is best for you, consider consulting with an accounting firm with expertise in startup company planning.
If you plan to do your own books and taxes, there’s a lot of material online on how taxes should be handled for each form of business entity. The IRS website—which, for instance, offers a wealth of information on how an LLC should navigate taxes—is a good place to start.
Know What Startup Costs Are Deductible
The IRS offers some tax breaks designed to help new business owners get off the ground. If your startup costs total $50,000 or less, you can deduct $5,000 in business costs and $5,000 in organization costs.
Some people opt include startup costs in their business’ first tax return. Others choose to amortize startup write-offs, deducting them in installments over a period of 15 years. The following are just some of the one-time capital investments that are deductible, either in full or in part.
Before you open the doors of your business, whether virtual or brick-and-mortar, there’s an active phase of researching and planning your enterprise. Talk to an accountant about how to get the most out of deductions available for:
- Feasibility studies
- Market and product analysis
- Surveying the competition
- Travel for scouting out potential business locations
Advertising And Marketing
Money spent promoting your business is deductible, including business cards, flyers, branded swag and advertisements, both print and digital. You can also write off the cost of website creation, including domain name purchase, web hosting, and software subscriptions.
You can’t deduct the cost of your commute but almost all other business-related travel is deductible. This includes money spent traveling to trade shows and meeting with prospective investors, suppliers, distributors, and customers. Business travel costs are closely scrutinized by the IRS, so take care to track your mileage and airfare and be prepared to produce records and receipts.
You can deduct money spent on professional support, with potential write-offs including fees for:
- Accounting services
- Incorporation or organization fees
- License and permit fees
If you’ll be running your business with the help of employees, you can deduct money spent on:
- Employee training
- Employee wages
- Employee benefits
Many of the expenses of setting up your office are deductible, including:
- Business equipment rental
- Cleaning services
- Mortgage, rent or lease costs
- Office supplies
- Utilities and internet fees
These deductions apply if you are outfitting a home office, but there are some specific rules you must follow for your home space to be considered a legitimate office.
Familiarizing yourself with tax basics is one of the first steps to running a business that is both profitable and in line with IRS requirements. If you want assistance, from startup support to help with tax preparation, bookkeeping and payroll, contact AA Tax & Accounting Services. Our team is ready to help you turn your entrepreneurial dreams into reality.