With each new year comes a new tax season. Business tax season is a bit more involved than most personal tax filings, but with proper organization and education, it's not as much of a hassle it's cracked up to be.

The truth of the matter is, when filing startup and small business taxes, you must be a stickler for paperwork. That's the most important piece of advice we can give anyone. Maintain a file of every drop of paperwork that enters and exits your startup. Keep every receipt, file every invoice, and reserve a copy of all your payroll paperwork.

In fact, at Zeni we're religious about capturing, categorizing and storing all of our customers' receipts, invoices and important business documents in real-time, so when tax season comes around or you're up for an audit, the process is a breeze.

With this idea firmly planted in your mind, your startup tax situation won't make you hide under the covers. Instead, startup tax prep will be simple and tax deductions will be a major win. Get your business records out! We're about to ace tax season with these startup tax tips.

See also: How To Make Sure Your Startup is Audit Ready (And What To Do If You’re Audited)

Know Your Deadlines

"When do I have to file my business taxes?" you ask? Different types of business have different filing deadlines. So, how you formed your startup will help you mark the appropriate date on your calendar and allow you time to start gathering your materials. Here are your deadlines:

  • March 15 - This is the deadline for partnerships, multi-member limited liability companies (LLCs), and S Corporations. Submit extension request (Form 7004) by March 15 (along with a deposit of the estimated tax payment due) for a filing extension until September 15.
  • April 18 - This is the federal deadline for C Corporations, single-member LLCs, multi-member LLCs (that are taxed as corporations) and sole proprietorships. Submit extension request (Form 4868) by April 14 for a filing extension until October 17.
  • May 16 - This is the deadline for nonprofit organizations (Form 990). Submit extension request by May 14 for a filing extension until November 15.

It's important not to take these dates lightly. Who wants the government coming after them? But, perhaps more to the point, you'll be penalized 5% of the taxes you owe for every month you're late.

Worst of all, that can be compounded by a whopping 25% of the taxes you owe. If things progress to 60 days after the filing date, the minimum penalty will be either $210 or 100% of the taxes you owe.

Pinpoint the Right Tax Forms

Before you start gathering your financial records, it's important to align yourself with the right tax forms. Each form will give you a better understanding of the direction you need to take.

Submitting the wrong IRS form is a waste of your valuable time. So, here's the nitty-gritty on the different types of tax forms, according to your business structure:

  • Schedule C - These forms are for sole proprietors.
  • 1099-MISC - Sole proprietors may also be able to use this form.
  • Form 1120 - These forms are for C-Corporations.
  • Form 1065 - These forms are for standard partnerships and multi-member LLCs.
  • Form 990 or Form 990-PF - These forms are for nonprofits filing as public charities or private foundations, respectively.
  • Form 8832 - This tax election form is for any eligible entity to elect how it will be classified for federal tax purposes, as a corporation, a partnership, or an entity disregarded as separate from its owner.

Pull Your Financial Records

If you're not organized, this can be a lengthy process. But, the key to success here is to stay on top of your bookkeeping on a monthly basis, and "gather as you go." Maintain a copy of every invoice that goes out and every receipt for every purchase. Basically, you want to leave a trail of bread crumbs for every dollar earned or spent.

If you work with a bookkeeping or accounting service like Zeni, you're really going to love us at the start and finish of each year. Zeni keeps your bookkeeping and QuickBooks accounting software updated on a daily (yes, daily!) basis, allowing us to keep all relevant tax documents organized year-round and work with our on-staff tax professionals and certified public accountants (CPA) to prepare and file your taxes quickly and efficiently. And because the same team who manage your day-to-day finances are also helping prepare your taxes, we can optimize your taxes for the best possible deductions (more on this later).

See also: Hit the Books: When To Hire a Bookkeeper For Your Startup

Here's a solid start to the kinds of financial documents that need to be set aside for startup taxes:

  • Profit & Loss Statement - The first and most important document will "show them the money." Your profit and loss (P&L) statement indicates how much income you took in and how much money your business lost through expenses.
  • Bank & Credit Card Statements - Even though you've detailed all your gains and losses, you still want to assemble monthly bank statements (for all accounts: checking, savings, and credit).
  • Invoices & Receipts - Yes, your bank statements will outline every dollar that went in and out, but you still want to provide more "evidence" of business transactions. Be sure to submit every invoice that was sent out and at least every receipt for business expenses over $75.
  • Payroll Sheets - If you have employees, then this is another one of your major "expenses." Use your payroll software to indicate everyone's wages and deductions, as well as your payroll taxes.

There may be other records that will be required, but this should give you a healthy start. If you keep tabs on these items in particular, you're going to have a much smoother tax season that any of your comrades who didn't "gather as they go."

Other important details that may be required include the percentage of your ownership in the company, your acquisition date, and your distribution details. While these may not be records, per se, they'll be important bits of data to put your finger on when the time comes.

Get Ready to Prove Your Deductions

A smart CPA will quiz you on all the areas they think you'll be able to score a few tax deductions based on your business startup costs. Still, you can come to the table armed with pre-prepared proof. Here are some of the common business start-up deductions you might want to earmark:

  • Home Office - You may be able to deduct a certain amount of square footage from the cost of your home as a business expense.
  • Office Supplies - If you followed your new "gather as you go" guideline, then all your receipts for business-related office supplies may earn you another deduction.
  • Home Internet - You may be able to deduct a certain portion of your monthly home Internet bill used for business purposes.
  • Cell Phone - The same may hold true for a portion of your cell phone bill if you conduct a lot of business over the phone.
  • Payroll Expenses - Service fees paid to your payroll provider and workers' compensation insurance can both be tax deductible.
  • Education - If you took any courses for the betterment of your business, that may be another deduction.
  • Utilities - Any overhead expenses that are used to fuel your business - heating, air conditioning, electricity - may be able to be deducted.
  • Mileage - Startups who are taking over the online realm may not do a lot of driving but, if you use your vehicle for meetings, etc., you may be able to deduct a certain portion of your fuel expenses.
  • Business Insurance - Write off the costs of general liability insurance, cyber liability insurance, commercial property insurance and/or loss-of-income insurance.

See also: Year-End Checklist for Busy Startup Founders

Check If You Qualify For The R&D Tax Credit

Your company may be eligible for the Research & Experimentation Tax Credit, most commonly known as the R&D Tax Credit, if your business spends money on research and development in the United States. Many tech companies, due to the nature of their business, are inherently eligible.

Do you think your startup or small business might be eligible? The three key criteria a business must meet to qualify for R&D Payroll Tax Offset Credit include:

  1. Gross receipts or revenue of less than $5 million for the tax year
  2. No gross receipts or revenue for any tax year before the 5-tax-year period ending with the current tax year
  3. Your business is not registered as a tax exempt organization

To claim the tax credit, Partnerships and S-Corporations must fill out Form 6765, while all other businesses will fill out the Form 3800, General Business Credit — in either case, the form should be submitted along with your tax return.

Writing Off Costs of Starting A Business

If this is your first year filing taxes for a new business, you may qualify for tax breaks specific to essential startup costs incurred. Qualifying startup expenses fall within three key categories:

  • Creating the business. May include market research, product analysis, travel related to site/location selection and more.
  • Launching the business. May include costs of hiring and training employees, travel expenses related to suppliers and distributors, marketing expenses, legal fees, accounting fees and more. Does not include the cost of equipment, which is depreciated under normal business deduction rules.
  • Organizational expenses of forming the business: May include incorporation paperwork, legal fees, state organization fees, accounting fees and more.

Avoid Common Landmines

Now that we can see the landscape of what to gather and when, let's discuss a few ways to maneuver around the minefields. In an effort to reduce time, effort, and nail-biting, here are a few mistakes to try and avoid in your business taxes:

Remember: It's Business, Not Personal

You probably already deduced this by the manner in which we're advising you to "turn over your records" to your CPA. But, it's essential to never operate your tech startup out of your personal checking account.

Trying to weed through bank statements to ascertain if this is the $129.56 for the office chair or the pink flamingo umbrella is a major waste of time. If your business account is separate from your personal account, then your bookkeeper can build a report at the end of the year with ease.

Set Your Structure from the Start

It may surprise you, but some folks breeze over the most important element: defining their business structure. It's important to decide what you want to be from day one. This is important on several different tax levels.

For example, LLCs are a nice way to offset your losses from ordinary income. But, for some, they're not always the best structures in the long term. Then you have C-Corporations, which are often prime candidates if you're seeking funding. So, depending on the nature of your business, this is one of the first issues you'll want to tackle.

Pay Your Payroll Taxes Properly

Once your startup starts to take on sparkplug employees, be sure to tax them properly. Make sure you pay your state and federal payroll taxes no later than three days from payday.

The government does not hold back on businesses who don't pay their payroll taxes on time. And if they can prove you intentionally made this error, well, now we're talking about a federal crime.

Filing Startup Business Taxes Right

Taxes sure do sound like a lot of legwork, don't they? The truth is, taxes don't have to be your problem. All business owners have to do is be a stickler for paperwork. Whether it's you or a lovely assistant, be a hound dog for copies of everything - invoices, receipts, and bank statements for sure.

But, the reason taxes don't have to be your headache is because you can ask your bookkeeper to wrap your statements and invoices up in a bow and send them off to your accountant in one fell swoop. The rest, as they say, will be history.

At Zeni, we can fill this need (plus some!) for all customers enrolled in a Zeni Bookkeeping, Full Service, or CFO Plan by helping you maintain accurate records for your business year-round, and manage your annual tax preparations and filings.

Built specifically to meet the needs of startups, Zeni gives startups an AI-powered finance team to automatically manage everything finance-related for their business — bookkeeping & accounting, invoicing, bill pay, yearly taxes, reporting, expense management, and more.

Available to Zeni customers only, Zeni Tax handles federal, state and local tax returns — including the R&D Tax Credit when applicable — as well as year-round tax and compliance support for its customers for a low annual fee.

  • Deep industry expertise: Our team of tax advisors are led by a highly-qualified CPA with 10+ years of experience in U.S. corporate tax advising, working for companies including WhatsApp, FitBit, Cloudera, Ring Central and more.
  • Ongoing support for optimized filings: Tax advisor support year-round, to ensure we're optimizing your bookkeeping and accounting for taxes all year long.
  • Flat fee: Zeni charges its customers a low, predictable fee starting at $2,499 for annual state, federal and local taxes.
  • Consolidation of finance functions: One fully-integrated finance team to manage every aspect of your company's finances, soup to nuts.

Interested in learning more? Sign up for a demo and discussion of how Zeni's finance professionals can make tax season a breeze for your company, and beyond tax season, how we can help manage every aspect of your company's finances with ease. 🕊

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