Start Up Businesses: Start Smart With Our Guidance

Calling All Entrepreneurs and Market Disruptors!

Starting a business is exciting, and we know you’re ready to hit the ground running. But too many new business owners get tripped up when it comes to tax time. They had the right business idea, the right paperwork, but not the right idea of what the IRS or state expected from them. That’s where we come in. We help you start strong and be prepared for tax requirements. Let’s make sure taxes don’t become a surprise bill or leave you scrambling last minute. Talk to us before you file your LLC or sign that lease.

Preparing Your Business

Before you get caught up in the excitement of logos, websites, and product launches, it’s worth pausing to understand what opening a business really involves–especially when it comes to taxes. How you handle your tax obligations and requirements from the beginning can either set you up for success or create major headaches later on. Learning how to structure your finances before you start is key to a seamless experience during tax season.

Tax Considerations for Start Ups

🧾 How Your Business Is Taxed (Federal Tax Classification)

Your tax responsibilities depend a lot on how your business is set up:

• Sole Proprietorships & Single-Member LLCs:
  Profits “pass through” to your personal tax return. You report the income and pay taxes on it yourself.
• Partnerships & Multi-Member LLCs:
  The business files Form 1065, but it doesn’t pay taxes directly. Instead, each partner gets a Schedule K-1 showing their share of income to report on their personal taxes.
• S-Corporations (S-Corps):
  Also pass-through entities, but with a potential perk: owners can pay themselves a “reasonable salary” and possibly save on self-employment taxes.
• C-Corporations (C-Corps):
  Pay corporate income taxes and shareholders pay taxes on dividends—this is known as double taxation.

🌍 State and Local Taxes

Taxes don’t stop at the federal level—your state (and sometimes city) wants a piece too:

• Some states charge income, franchise, or gross receipts taxes, even if your business isn’t profitable yet.
• LLCs often owe annual fees or franchise taxes just to stay in good standing.
• You may also be responsible for sales tax if you’re selling products or taxable services.

👷‍♀️ Self-Employment Taxes

If you’re not an employee of a company (including your own), you’re likely on the hook for self-employment taxes, which cover Social Security and Medicare.

• This applies to sole proprietors, partners, and LLC members.
• If you’re an S-Corp owner, you may be able to reduce these taxes by paying yourself a reasonable salary and taking additional profits as distributions (which aren’t subject to self-employment tax).

🆔 Getting an EIN (Employer Identification Number)

• Think of an EIN as a Social Security Number for your business.
• Most businesses need one—especially if you have employees, plan to open a business bank account, or have multiple owners.
• It’s free to get from the IRS and takes just a few minutes online.

💵 Hiring Employees = Payroll Taxes

• If you’re bringing on staff (even just one person), you need to register for payroll taxes with the IRS and your state.
• You’ll need to withhold taxes from paychecks, file payroll tax forms, and pay employer contributions.
• Even if you’re only paying yourself, certain structures (like S-Corps) require you to treat yourself as an employee.

📚 Keep Good Records from Day One

• You don’t need fancy software to start—but you do need to track income and expenses clearly.
• Corporations and some LLCs are required to maintain more detailed financial records, so keeping everything clean from the beginning will save you time and stress at tax time.

Other Considerations

• Investors and Fundraising: Corporations are typically better suited for venture capital or issuing stock.
• Startup Costs: Up to $5,000 of startup costs can be deducted in year one, with the deduction reduced dollar-for-dollar if startup costs exceed $50,000.

Note: startup costs exceeding the $5,000 must be amortized

• Research and Development: Startups with qualifying research can offset payroll taxes using the R&D credit.
• Qualified Small Business Stock (QSBS): Section 1202 may allow C Corporations to exclude up to $10 million in gains on the sale of stock held for 5 years.
• Exit Strategy: Entity choice can impact the ease and tax consequences of selling the business.

Are You Ready?

You’ve got the ideas, the drive, and the plans–but don’t forget the taxes. A little guidance now will prepare you for what’s to come later. Regardless if you’re still brainstorming, or are ready to take the leap, it’s never too early to check in with a tax advisor to make sure you’re on the right path. We’ll help you get started the right way.