Farwah Jafri | May 16 2021
With the tax season just around the corner, many startups and small business owners are concerned about not being able to timely track all the receipts and invoices, making an error in filing or simply not keeping up with the deadline. Some businesses, especially startups and entrepreneurs, are stressing over their startup tax filing primarily because of the unprecedented challenges and business implications of COVID-19 in the past year.
However, there is always a silver lining.
The current tax code suggests that companies can use their past losses to offset future taxes under certain circumstances. This means that businesses will have the opportunity to make up for their 2020 losses in future profitable years.
Unsure about where to begin? Below are some critical steps that you need to follow to prepare your business for the tax season 2021.
Every documentary evidence matters when it comes to filing taxes. It will help if you keep a record of all the paperwork. This includes all the receipts, invoices, bank statements, payroll records, and any other documented proof that supports an item of income, expense, or credit that will be used to complete entries in your Company Tax Return. This will not only keep your business affairs up to date and on the right track but will also help you stay fully prepared for your startup tax filing during the tax season.
There are certain documents that you require to get your startup’s taxes done. These include:
You might be required to submit other records as well for your startup tax filing, but this should give you a solid start for a much smoother and stress-free tax season.
Heard of Form 1040 or Form W-4P? What is Schedule C for? What’s the difference between Form 1120 and Form 1120S?
Take a deep breath!
You don’t need to get bogged down with a long list of these tax forms out there. You only need to know the forms specific to your business structure that you can use for your startup tax filing. You may end up submitting the wrong IRS Form if you don’t have the right know-how. Avoid such costly mistakes and align yourself with the correct forms to save your time.
Take a look at the different types of tax forms below and find which one is the right form for your startup tax:
Deadlines approach before you know it, and for your startup tax filing, you cannot afford to miss any. Better mark the dates on your calendar to avoid being the last-day filer or save yourself from penalties for late returns.
The 2021 tax deadlines for different types of businesses can be found on IRS website. Don’t let the dates slip for your startup tax to alleviate concerns around potential fines and interests.
For startup tax, you are eligible for deductions of up to $5,000 each of your startup costs and your organizational costs in the year you kick off your business. Treated as capital costs and considered as long-term assets by IRS, these allowable business expenses include those incurred on market research, marketing, advertising, employee training, travel, legal fees, and other professional fees you paid for establishing your business.
If you are a tech company, you may even be eligible for the Research & Development (R&D) Tax Credit, most commonly known as the R&D Tax Credit. However, your business must meet the following two critical criteria to qualify for R&D Credits for your startup tax:
There indeed is a lot of legwork involved in tax preparation. Though it doesn’t have to be stressful if you have a tax preparation and filing expert by your side that can manage your annual startup tax efficiently. Having an expert bookkeeper and tax preparation specialist is one of the best business investments you can make. Nevertheless, it needs to be done sooner, rather than later.
Tax experts at Monily have partnered with thousands of startups and small businesses. They are well-positioned to understand the dynamics and help you maintain accurate and up-to-date records for your business year-round, and timely manage your annual startup tax filing. The trained and experienced finance team at Monily makes every aspect of your startup’s finances including your startup tax prep as easy as never before.
Interested in learning more? You may sign up for a free trial and see how Monily’s tax experts enable you to ace your startup tax season.
Farwah is the Product Owner of Monily. She has an MBA from Alliance Manchester Business School, UK. She is passionate about helping businesses overcome challenges that hamper their growth, which is why she is working at Monily to facilitate entrepreneurs to efficiently manage business finances and stay focused on growth.