4 Easy Tips For Filing Your Startup Taxes For The First Time
Managing startup taxes, especially for a newly operating business, can be very overwhelming. One thing you will quickly learn in business is that tax planning and management is a never-ending cycle. There is always a tax regime to file or pay. Plus, government bodies are always introducing new tax regimes to raise money for running the country.
As a business owner, you need to be on your toes when it comes to your startup’s tax planning and management. This is a very overwhelming process, which can take a lot of time that you’d otherwise dedicate to other aspects of your business. Because of this, I recommend hiring a professional accountant to help you with the tax aspects of your business.
Still, it’s important that you understand startup taxes. You just need to know the basics of tax planning and management for your business. This way, you will always understand what your accountant is doing.
In this article, I will take you through the basics and the important startup taxes tips to understand. We will talk about the available accounting basis to choose from and how to understand your tax obligations.
Learn more from a related article: Accountant vs Bookkeeper: Which One Do You Need?
Tips for Filing Your Startup Taxes For the First Year
Understand Your Startup’s Accounting Basis?
The first choice to make, especially if you have not been handling the business’s bookkeeping regularly, is to choose the accounting basis. There are two methods:
- Cash basis – where you recognize the income and expenses of the business when money changes hands. If you have sold anything to a customer, you will only recognize or post the sale when you receive the money. The same applies to expenses, where you recognize them only when you have paid the money.
- Accrual basis – on the other hand, this method recognizes revenue and expenses when it is earned or incurred. It doesn’t matter whether you have received money from the customer or not or you are yet to pay the supplier; you must recognize the transaction once it happens.
Are Your Documents Organized?
Another important issue in business, especially when it comes to tax and finance matters, is proper documentation. These act as proof of any business transaction and dealing. Lack of this could lead to legal issues with the tax body in your country.
If you have been doing bookkeeping for your small business regularly, organizing the documents will be a lot easier. If not, it is time to get to it. First, start by gathering bank statements, credit card statements, invoices, receipts, and any documentation regarding your business transactions for the previous year.
Second, go through the documents and separate any documents that touch you personally, not the business. The goal is to separate your personal finances from business ones.
Organizing your documents will make data entry for the missing period much more manageable. It also makes them more accessible if there is ever an audit by the tax body.
I’d also recommend having a year-end accounting checklist as you do this. As you prepare to file your business taxes, you must also close books for that period to get the business profit or loss and any tax liability. Having a year-end checklist ensures you are organized during this process, and you do not miss anything, including allowable deductions that could reduce your business’s tax liability.
What’s Your Tax Obligation?
The income tax obligation for your business will mainly depend on the business entity you registered your business under. For instance, sole proprietorships and partnerships have a different way of reporting taxes than corporations.
Under a sole proprietorship and partnership, the taxes pass through the owner’s individual taxes in most countries. But, if you registered your startup as a corporation, it is treated as an individual with its own tax liability. You can not file the company’s taxes through yours. The tax liability for both the business and you are treated as separate and must be filed and paid as such.
Apart from knowing where your business lies in filing taxes, you must also get the tax liability for that period. You should work with a certified tax accountant to ensure any information you provide to the tax authority is accurate.
Know The Tax Deadlines
Even if you have a bookkeeper or an accountant handling your startup’s taxes, it is best to have a calendar of tax due dates with you. This way, you can be assured you never miss a deadline and face fines and taxes from your tax body. It also gives you ample time to forecast your business finances and save for the year’s taxes. You can learn more about the most common and Key Tax Deadlines For Your Kenyan Business.