5 Tax Blunders That May Get Your Startup Into Trouble

Listen up, startup founders! We’ve got some knowledge bombs on the rookie tax mistakes you must avoid.

Believe it or not, taxes can make or break your new business. Did you know that 15% of small business owners consider tax troubles a big problem? Of course, you don’t want your startup to be part of that statistic.

So, let’s get down to saving you from these woes because most of them are avoidable. The best way to do it is to be aware of the mistake startup founders make. With some education, you can avoid them and keep your business on the right track. So get ready to dive into the ones you must steer clear of.

Mistake #1- Mixing Personal And Business Expenses

Mixing personal and business expenses is common for entrepreneurs but can get them into big-time trouble. When you’re just starting out, using your personal account for business expenses sounds convenient. But it’s a bad idea!

Not only can this lead to confusion, but it can also expose your personal finances your startup runs into financial trouble. Moreover, it can ruin your tax calculations. Commit to keeping personal and business expenses separate with separate bank accounts and credit cards for both.

Mistake #2- Failing to keep accurate records

Another mistake rookie startup founders often make is failing to keep accurate records. You may let things slip through the cracks early on. You cannot claim all the deductions and credits you’re entitled to without accurate records. You may even end up owing more in taxes.

So, keep detailed records of all your income and expenses from the outset. You can use accounting software if you lack the expertise or resources to hire a professional. Don’t forget to save all your invoices and receipts.

Mistake #3- Not knowing tax terms

Not knowing tax terms can be a significant mistake for startup founders. Keeping up with terms and definitions can be challenging because tax laws are full of technical jargon. However, it can cause confusion and costly mistakes.

For example, not understanding the difference between a credit and a deduction could lead you to miss out on big-ticket savings. You can rely on a Tax Glossary to clear your concepts as a beginner. Working with a seasoned professional also helps.

Mistake #4- Ignoring quarterly estimated payments

If you’re a startup founder, you’re responsible for making quarterly estimated payments to the IRS. Ignoring this requirement can have far-reaching implications, as you end up with a massive bill at the end of the year.

To avoid this, stay ahead of your quarterly estimated tax payment obligations. You can also set aside the necessary funds each quarter to avoid burdening your budget. Also, keep track of deadlines and adhere to them. 

Mistake #5- Forgetting to deduct startup costs

Launching a startup can be expensive, no matter how frugal you are. But the good thing is that you get to deduct startup costs from your tax returns. However, entrepreneurs often miss out on these deductions and leave money on the table. 

Are you keeping track of all your startup costs? Do you have records of office space rental, legal fees, and marketing expenses? If you’re skipping them, get going sooner than later. You can deduct them in the year you launch your business or amortize them over several years.

Conclusion

In conclusion, taxes can be painful for startup founders. But with awareness of common mistakes, you can avoid the pitfalls. So, keep these top mistakes in mind and ditch them to save up on tax bills. 

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