𝗧𝗮𝘅𝗲𝘀 𝗮𝗻𝗱 𝘁𝗵𝗲 𝗘𝗹𝗲𝗽𝗵𝗮𝗻𝘁
Taxes may be the elephant in the room for startups – something huge no one wants to admit (at least until it bursts through a wall).
There are a ton of nuanced yet impactful decisions when it comes to taxes. Let’s highlight some matters to possibly address.
𝙉𝙤𝙩𝙚: This is not intended as advice, seek an expert for guidance with any of these decisions.
· Determine how the business should be organized
· You may incorporate in a state other than your residence (e.g. Delaware). You still may have local filing requirements.
· Keep in mind that your selection may impact funding from investors and your personal liability, in addition to taxes.
· The decision between ISOs, NSOs, or RSUs has implications.
· Consider an 83(b) election to save on taxes later.
· Certain Stock Option Plans* require a 409(a) valuation.
𝗦𝗮𝗹𝗲𝘀 𝗮𝗻𝗱 𝗨𝘀𝗲 𝗧𝗮𝘅
· If required, sales tax must be collected by the seller at time of sale.
· The determination of goods and services subject to sales tax varies by state and city/county.
· Use tax is owed on some goods and services even if you were not charged at purchase (e.g. no tax listed on the seller’s invoice).
𝗖𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗲 𝗮𝗻𝗱 𝗣𝗮𝘆𝗿𝗼𝗹𝗹 𝗧𝗮𝘅
· Taxes may be owed in any area connected to revenues, employees, offices, or other financial interests.
· These taxes must be paid on time to avoid penalties and fees.
· In some cases, the government can 𝘱𝘶𝘳𝘴𝘶𝘦 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴 𝘰𝘸𝘯𝘦𝘳𝘴 𝘥𝘪𝘳𝘦𝘤𝘵𝘭𝘺 for unpaid taxes (even if you're set up as a corporation).
𝗖𝗼𝗻𝘁𝗿𝗮𝗰𝘁𝗼𝗿𝘀 𝘃𝗲𝗿𝘀𝘂𝘀 𝗘𝗺𝗽𝗹𝗼𝘆𝗲𝗲𝘀
· Startups may prefer contractors over employees to avoid certain taxes and benefits. However, there are guidelines.
· Just because someone works for multiple companies does not automatically make them a contractor.
· Government agencies are motivated to classify those workers as employees in order to collect taxes (e.g. unemployment insurance).
· Both homeowners and renters may be able to deduct a home office used exclusively for business.
· Generally, deductions for a home office (and utilities) are based on the percentage of residence devoted to business.
· Keep records of all your income and expenses from the outset. This will save you a ton of time later (e.g. if you seek fundraising or loans).
· Tax incentives may be available even upon launch.
· Business tax credits exist around renewable energy, research and development, and locating in certain areas.
· Determine if any tax incentives sure are offset by other factors (e.g. it may be tough to hire future employees in a new location).
Even before revenues and major expenses, certain tax decisions can have major financial and growth implications, so seek advice early.