Do you have an industry expertise that lends itself well to starting your own business? Or maybe you have a really good idea for a product that’s not in the market quite the way you see it? Whatever your reason, you’ve decided now is the time to launch and get things started. Congratulations on becoming a business owner!
Starting a business from scratch is no small task and there are many different things to consider. Here are some tax considerations:
- Choose wisely when it comes to entity structure. This is the foundation of solid tax planning and will impact your tax situation immediately and potentially for a long time to come. S Corporation? C Corporation? Something else? There are only so many options, but one may be much more suited to your needs than another. If you decide the entity you’ve initially chosen isn’t ideal, changing from one to another may be a walk in the park or may be so difficult it isn’t worth it – it depends on what you chose and where you want to be instead. Your corporate attorney and tax advisor can work together with you for an optimal answer.
- If the business entity structure is a “pass-through” or “flow-through,” the owner(s)’ tax situation will have an added layer of complexity. Entities such as partnerships and S Corporations are generally not themselves subject to income tax, but rather their owners are taxed on business profits. If you’ve taken a DIY approach to preparing your personal tax returns in the past, it’s likely you’ll want to have those handled by a tax professional in a pass-through business context.
- Financial statements are the backbone of tax planning and tax return preparation. If your books are in disarray, your tax situation will be too. Best practice is to bring on an outsourced accounting firm to assist you on a monthly basis. This is helpful not only for tax reasons, but also for general assistance running your business from the numbers side of things.
- Unreimbursed business expenses are generally not deductible for employees. For business owners, they often can be. Costs such as cell phone plans, home internet, home office costs, mileage and other travel costs, etc. are often available for a business deduction either by the business or the owner.
- Health insurance premiums can generally be deducted.
- The number of tax-deductible retirement plan options expand for business owners, e.g., SEP IRAs and Solo401(k)s.
Every situation is unique! Please reach out with any questions about tax-friendly strategies to consider for your new business.