Especially for established startups, it is important that founders pay attention to tax issues. Every penny counts for these companies, so a well-thought-out tax strategy and proper accounting can minimize the amount you have to pay to the government. However, if not done properly, a significant portion of your hard-earned income can be lost instead of reinvested back into your business. Below are some useful tips to ensure that the income you generate is not remitted to someone else.
Managing Tax Liability
Proper tax planning can help you control the tax liability of your business. Many business owners are surprised to find out how much money they can save when they use tax planning strategies. To choose when to use a tax strategy, credit, deduction, or rebate, you need to know your tax situation first.
Tax planning steps:
- Review your bank accounts to understand how your company’s financial resources are doing.
- Review your company’s income statement to understand how much revenue your company is generating and what your costs are.
- Review your current account balance to see what amounts you are paying today.
- Plan ahead for your taxes – both as a business and as an individual. Consider how your employees will be taxed after benefits, payments, and equity are deducted.
When planning, you must also consider the life cycle of the company, the value of your shares, and your current and future business goals, as these factors can significantly affect your accounting and taxing strategies.
The R&D Tax Credit
Technology companies benefit greatly from using this tax credit to offset research expenses. R&D credits are available even if your taxes are minimal or zero.
For your business to qualify, you must have gross receipts of less than $5 million and none prior to 2012. Research expenses that qualify for a payroll tax credit include capital expenditures or projects involving significant levels of technical uncertainty. An eligible small business can apply for its research credit on payroll tax liabilities up to $250,000 in one year. The R&D credit can also be used to reduce alternative minimum tax liabilities.
IOOGO offers an R&D Tax Credit service where we support businesses to file their tax credit request with the IRS.
Taxing Quick Tips
- Aim for a positive cash flow: Paying taxes is a chore for any business, and if you do not keep track of when you need to pay, you could end up with an empty budget at the end of the month. Never forget to anticipate tax payments to avoid such surprises.
- Factor in the tax implications of future investments, so you can plan and prioritize them ahead of time.
- Avoid penalties: always pay on time and consult a professional to make sure you do not have any liabilities to the government.