Many startup founders who take the DIY approach find themselves at a crossroads as tax season rolls in. The amount of time that goes into keeping track of ongoing records of their income, expenses, sale or purchase of assets, and the deductions that they plan to claim starts taking a toll. This further worsens when there are constant changes in business and tax legislation and processes.
There is no denying that it all becomes even more stressful when the startup tax filing deadline is just around the corner.
If you are one of those startup owners tiptoeing around, it is high time you considered hiring a professional tax preparer for your startup tax filing and relieve yourself from the intricacies involved in the tax prep process.
Having said that, you also need to ensure that your outsourced tax consultant doesn’t mislead you in the tax prep process causing another significant financial blow. With quite a few certified public accountants, enrolled agents, and tax consultants around, the most crucial question to ask is “how to find the right one?”
Here are some tips you should keep in mind when choosing a startup tax preparer:
While choosing a startup tax preparer, the first and the foremost thing to do is to check for their IRS Preparer Tax Identification Number or PTIN. This is an identification number that the paid tax return preparers must use on U.S. federal tax returns or claims for tax refunds submitted to the IRS. A valid 2015 PTIN gives the tax preparer the authority to prepare federal tax returns. Your tax return must have the PTIN and the preparer’s signature on it.
Although your startup tax preparer doesn’t need to have a professional credential, it’s always safe to look for certified public accountants, attorneys, or enrolled agents, preferably a part of a professional organization. However, don’t be fooled by credentials. He may have passed certain tests or undergone specific tax training. So do sort out the credentials before hiring the tax preparer and make sure he is knowledgeable and competent.
Moreover, due to the evolving tax laws and frequently occurring tax reforms, your startup tax preparer must be well abreast of the changes in federal, state, and local tax laws. He should be taking continuing education credits to stay informed and have up-to-date knowledge.
Your startup tax preparer should have at least 12 years of experience working as a CPA or attorney for a small business in the same industry as you. They should also have worked with startups that are similar to yours in terms of company structure, business entity type, size, growth stage, and location. All these elements have an important bearing on the tax return and startup tax filing requirements.
As mentioned above, there can be some complicated state-specific and locality-specific filing requirements. For instance, if your startup is based in Alaska and has offices in multiple states, you may have to fulfill additional state-filing requirements according to the states your startup has a presence in.
It can get even more intricate if you own a business in a state outside of the one where your home is. Make sure that your tax preparer knows all those startup tax filing requirements and walks you through the process.
You may be entitled to small business and self-employed tax deductions, which many small business owners may be leery of due to lack of enough knowledge, or they are simply apprehensive of the complexities involved in the claim process. Home office deductions, car expenses, travel expenses, advertising costs, professional fees are some of the tax deductions that can result in a significant refund of your withholding.
Similarly, companies such as biotech and medtech startups engaged in research and development can slow their burn rate with a payroll tax credit based on qualified R&D expenses. Your startup tax preparer should already be familiar with such tax deductions and credits and help you identify those and provide the right guidance and advice to increase your savings.
You should set clear pricing terms with your tax preparer early in the process. It would help if you understood that prices might vary based on how complex your return is and the extra services you may need in terms of different schedules, forms, etc. Be careful! The preparers should give you a clear and transparent fee structure.
Your startup tax preparer should be able to guide you well step by step. Any communication gap can thwart the whole process of the startup tax preparation. He should explain what information you need to provide, suggest ways for you to save on taxes, inform you if there are any new changes in tax laws that could affect your startup tax filing. Be wary if he is keeping you in the dark and not doing due diligence.
Taxing authorities may ask for additional information even after the tax season is over. Make sure that your startup tax preparer is available after your return has been filed for additional guidance and support.
Tax filing for startups can be extremely daunting, especially if you are doing it for the first time. However, there are tax experts and experienced professionals readily available that can help. Remember, a competent tax preparer does more than just filling out forms. They need to understand your business and the industry dynamics well and be available for year-round guidance and consultation.
With Monily around, you can rest assured that you will receive end-to-end tax preparation services. Monily’s tax experts have worked as partners with thousands of businesses and startups over the years and are positioned to set you up for a smooth startup tax preparation.