Taxes can be complicated, even if you run a small startup. So while it may be tempting for startup founders to don yet another hat, startup tax accountant should not be one of them.
So, what type of tax expert does your startup need and how can you go about finding them?
What Is A Startup Tax Advisor?
Investopedia defines a startup tax advisor as, “a financial professional who provides advice on strategies to minimize taxes owed while staying within the scope of the law and regulation.”
Experts such as tax advisors typically have advanced training and knowledge of tax accounting and tax law. This knowledge helps them minimize your taxes payable while also keeping your business in tax compliance, especially if your line of business regularly places you in complicated financial situations.
But tax advisors do more than just crunch numbers and fill out paperwork—that’s more in the territory of a tax planner. Tax advisors add value by first understanding your business and industry, and then making contextually relevant recommendations on financial strategy.
See also: Tax Preparation Vs. Tax Planning: What's The Difference?
Of course, as a fledgling company, you’ll want to seek out financial professionals who have experience working with bootstrapped, angel funded and venture-backed startups—think startup tax advisors, or startup tax accountants and tax attorneys. These types of financial professionals will understand startup-specific scenarios and their associated tax implications, such as venture capital funding, employees exercising ISOs (incentive stock options), payroll taxes (and deductions!), Delaware Franchise Taxes, exits and acquisitions, and more.
But how do you know when a tax advisor is a good fit for your startup’s accounting and tax needs? The following considerations offer a beginning point for your selection process.
See also: 2022 Startup Taxes: A Complete Guide to Filing Small Business Tax Returns
How To Find A Suitable Startup Tax Advisor: 4 Considerations
1. Industry Knowledge
If a startup tax advisor doesn’t know the ins and outs of your industry, their advice won’t be as relevant. For example, they may provide recommendations that generally hold true but don’t make as much sense given how your industry works. In addition, they may not know about tax savings and credits (such as R&D Tax Credits) available for the industry, or which filing status will most benefit your startup.
See also: Startup R&D Tax Credits: What You Need To Know
Does the startup tax advisor have relevant qualifications? For example, advisors typically have at least a bachelor’s degree in accounting, taxation, or a related field of study (e.g., law). They may also have a master’s degree in similar fields. Consider also verifying whether they’re a member of the National Association of Tax Professionals (NATP), as this could indicate their level of awareness about tax changes and strategies.
While not a requirement, you may gain additional value if the tax advisor is licensed as a certified public accountant (CPA). CPAs typically have expertise in tax consulting and financial planning. In addition, CPAs must earn continuing education credits to maintain licensure.
See also: Hiring an Accountant: 10 Interview Questions to Ask When Hiring an Accountant
3. Breadth Of Experience
Filing federal and state tax returns for startup businesses often comes with unique tax scenarios that only a tax advisor well-versed in the space would know how to handle.
For example, it’s not uncommon for startups to have foreign owners (with at least 25% ownership) or a business structure that includes foreign subsidiaries. The IRS calls these types of entities reporting corporations. Knowledge of this business structure is critical, as misfiling in this context results in steep penalties.
For example, the IRS will assess a $25,000 fee for any reporting corporation that either fails to file the appropriate form when due and as instructed or fails to maintain records as required by prescribed regulations. In addition, related parties may also face criminal penalties for failing to submit information or filing false or fraudulent information.
See also: Startup Bookkeeping: Common Mistakes VC-Backed Startups Make and How We're Solving Them
4. Trusted Referrals
Direct referrals are traditionally your best bet in finding a good service provider, and startup tax advisors are no exception. If you have close business associates or people in your professional network you can reach out to for a referral—particularly those who also run or work at a startup—don’t hesitate to do so. These connections will know firsthand about the capabilities of an advisor around startup-related tax matters.
If you can’t find any relevant referrals, do your own research as a proxy. Visit their websites and reach out directly. Seek out information on the points above, and review testimonials from past clients. Be sure to qualify the testimonials by verifying that the clients run or work at startups.
Go beyond a single startup advisor—engage with Zeni.
Conquer startup taxation with Zeni, a team-based, AI-powered finance concierge. We combine cutting-edge technology with professional human expertise to help you avoid common startup accounting, bookkeeping, and tax problems. In addition, Zeni helps you optimize your accounting systems so you always have access to the most accurate, up-to-date information about your company’s finances.
Built specifically to meet the accounting needs of startups, Zeni is an AI-powered finance concierge that manages all your bookkeeping, accounting, invoicing, bill pay, reporting, and more. Our team maintains detailed, GAAP-compliant records for your business year-round, and, for a fixed fee, we can take care of all your federal, state, and local tax returns, so you can be confident that your business isn’t leaving money on the table.