Startup Guide on Taxation
The first few years of owning a startup are all about trying to make sure the ideas you have are going to sustain your company when you finally open your doors. But even before you begin selling products and taking customers, the bills can add up fairly quickly. There is research and development to consider, along with marketing, accounting, and general business activities. All of these things cost money, and when a business is spending money, it is going to owe taxes. Many startups make the mistake of thinking they will not owe business taxes until they open their doors.
While you may not like the idea of having to pay business taxes from the moment you begin your startup journey, you will also be happy to know that there are many tax exemptions that startups can take advantage of as they are getting off the ground. For instance, startups are able to make a wide variety of deductions on their annual tax bill, even if they have not opened their doors to customers just yet. If you are spending money on supplies, electronics, research, marketing and other items related to the business, all of these expenditures are tax deductible.
But the ability to make deductions does not mean you should be in a rush to spend as much money as you can during those first couple of years. Yes, all the money you are investing into the business is tax deductible. But you are still going to have to spend the money. The amount you will save on taxes will not cover all your spending. Businesses need to find the right balance between taking advantage of the ability to deduct their expenses, while maintaining some frugality and sensibility when it comes to spending. You do not want to go bankrupt before you even get going!
While many modern startups are online-based, there are still a number of small businesses where the owners will buy property before the company is opened. If you have bought property in conjunction with your startup, make sure you are taking into account the property taxes you will have to pay each year. It is very easy to forget about those taxes and fall behind on your tax bill because of them. Include the property taxes for every business related property you own or rent when you are compiling the company’s quarterly and annual financial statements.