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Business | Startup Registration ,Taxes & Patents (Recommended)

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As a startup, it is crucial to comply with tax filing. VcourTs CPA assist you in complying with taxation so you can focus on developing your business instead of dealing with Tax Authorities, Taxation is our major forte .

Fundamentals of Startups and Taxes

  • IRS: The Internal Revenue Service (IRS) is a U.S. federal agency responsible for regulating collecting taxes and implementation of tax laws. It was set up in 1862 by President Abraham Lincoln, IRS works under the authority of the United States Department of the Treasury. The main role of the agency incorporates the collection of individual income tax and business taxes. The IRS additionally handles corporate, excise, gift, estate taxes incorporating mutual funds and dividends.
  • Taxes your Startup is subject to:
  • Income Tax: Income tax is a tax on the payments your startup receives from some source of income or the sale of your business goods and services. The taxable income is derived by the following method:
    Taxable Income+ Gross Income-Deductions
    Gross income is receipts and gains from all sources of income before any deductions are made.
    Deductions are any expenditure withheld from gross income to decrease the amount of taxable income.
  • Franchise Tax: The franchise tax is imposed on every startup or business that exists. Startups are required to pay an annual franchise tax. Usually, a startup is subject to state franchise tax if the startup is conducting business was incorporated in that state. In franchise tax, there is generally a minimum fee. Mostly the fee has no concern as to whether you have generated income or not.
  • State Income Tax: Filing for state income tax is different from federal income tax. Every state in the U.S has some specific tax system, and it depends upon the startup's ventures in that state, it requires annual tax filings.
  • The Federal Income Tax: The federal income tax is levied by, IRS on the annual earnings of startups. It is a pay-as-you-go-tax, considering you must pay as you receive income during the year. This tax is applied to all forms of earnings that make up a startup's earnings taxable, such as capital gains.
  • Payroll Tax: If your startup or small business has employees then you have payroll tax. This tax is based on the salaries and wages paid to employees. These taxes are deducted from the employee earnings and paid to the IRS.
  • Other Taxes: There are many other taxes that your startup is subject to like foreign tax, property tax, sales tax, and local taxes.
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Startups and Taxes FAQs

Yes, you have to file for taxes because IRS requires you to file for it even if your business has made any sales. Moreover, it can be an advantage for your business because you can gain tax credits for all the expenditures while having no revenue. You can claim tax credits in the coming years to reduce your business taxes.

The taxes are based on the net income you generate from your business. It is not based on your revenue as it is different from net income. Your net income is revenue after reducing expenses. The expenses that are deducted from your total revenue are legal fees, accounting fees, salaries/wages, and software expenses. The expenses reduce your net income and which eventually lowers the tax amount you have to pay.

If you carefully record all the business expenses incurred during the year and account for revenue without any mistake in any income statement or balance sheet. You can save only by showing the true picture in accounts.

Yes, you can let the taxation be handled by a CPA who has startup experience. Vcourts can assist you in that matter. We can find a CPA with startup experience to guide you through the taxation process. Taxation is a complex process, and it should be handled by someone who is well equipped with knowledge in this area.

For C Corporations, the business pays the tax at the corporate level, and the shareholders pay taxes on income they receive, so they are taxed twice. The Nonprofit corporations with 501(c)(3) status are exempt from federal income taxes. The S Corporations, LLCs, and sole proprietorship are taxed once on the profits they receive.

Yes, you should file for tax returns as in future business endeavors; you might need your company's past returns. You should portray that your company has been compliant with laws and file for correct returns. So the bottom line is to file for taxation as it will be helpful in future.

There are different forms based on your business structure:
• Schedule C- Tax Form for Sole proprietors.
• Form 1120- Tax form for C-Corporations.
• Form 1120S-Tax form for S-Corporations.
• 1099-MISC- Tax form for Sole Proprietors.
• Form 1065- Tax forms for standard partnerships and multi-member LLCs.
• Form 8832- Tax election form for an eligible entity to elect how it will be classified for federal tax purposes, as a partnership, as a corporation, or an entity not considered as separate from its owner.
• Form 990/Form 990-PF- Tax form for nonprofit organizations filing as public charities or private foundations.

There are certain deadlines for businesses to file for taxes. Here are the deadlines for different businesses:

February 1: This deadline is for employers to file wage and tax statements, Form W-2, W-3, Form 1099-MISC, Miscellaneous income, Transmittal of Wage and Statements, and Form 1099-NEC, Nonemployee Compensation with Social security Administration and the respective taxpayers.

March16: This deadline is for limited liability companies, S corporations, and partnerships.

April 15: This deadline is for C corporations, multi-member LLCs, sole proprietorships, and single-member LLCs.

March 16: This deadline is for nonprofit organizations.

You can find your deadline according to your business type

The chances are very low for seed-stage startups to be audited. But it is still suggested to file for taxes and maintain proper records.

Let us assume that you made a legitimate expense. The IRS auditor looks for proof that the expense you made was legitimate and the deductions are valid. If you are missing any expense receipt, then the auditor may ask your CPA to recreate a detailed history of your expenditures. Also, the auditor might remove the expense from your tax return.

The IRS auditors will look into the following things:
• Payments made outside the payroll system or payments made to the executive team.
• The big payments that you have made to contractors.
• Randomly selected transaction receipts.
• Validating accounts payable (AP) and accounts receivable (AR).

Yes, even if your startup has lost money and left with nothing but personal savings, you need to pay the taxes. The tax that you would not be subjected to is the Income-tax as you have no income, and income tax is based on profitability. There are various other taxes that you are still subject to which are not connected to revenue.

Your financial records are pull-out first when you are filing for tax returns. So you need to maintain proper accounts as it will become an easy process for you. These are the accounts you must maintain to make the tax filing process easy:
• Profit & Loss statement: It indicates the money you have lost in expenses and how much income you generated.
• Receipts and Invoices: These are the evidence of your business transactions. You should submit all the receipts for business expenses over $75 and every invoice sent out.
• Bank and credit card statements: You should assemble all your bank and credit card statements.
• Payroll Sheets: If you have employees working in your startup, then you have another major expense, which is their salary and wages. So you should maintain payroll sheets. It will also help you with payroll taxes.
There are many other records that you should keep, but these are the most important ones.

R&D Tax Credit is for the startups or small businesses that spend money on research and development in the U.S. Most tech companies are eligible for this tax credit due to the nature of their business:
These are the three eligibility criteria for R&D Tax Credit:
• If your startup is with gross receipts/revenue of less than $5 million for the tax year.
• If you have no Revenue/gross receipt for any tax year before the 5 tax years ending with the current tax year.
• If your startup is not registered as a tax-exempt organization