HIRING SUBCONTRACTORS VS. EMPLOYEES
Your business needs manpower. But will you hire subcontractors or employees? Subcontractors work from their home or office. Employees, on the other hand, work regular hours specified by the organization and they receive regular checks. Generally speaking, employees are more expensive than subcontractors. You should not mix up the two. If you do and the IRS decides that a particular worker is an employee and not a subcontractor, you will invite hefty penalties.
KEEP PERSONAL ACCOUNTS SEPARATE FROM BUSINESS ACCOUNTS
When you launch a business, you can’t be 100 percent sure that it will succeed. However, that is no excuse for running your startup from your personal account. You should open a separate business checking and savings account and ensure that the income and expenses generated by your business come out of it. There should be no personal withdrawals in your business bank statements. If you mix personal and business funds, you will probably find yourself in business tax debts.
ORGANIZE YOUR PAYROLL
The IRS wants to ensure that you pay your dues. When you hire employees, you will have to deal with scheduled payments and lots of tax forms. Each employee has to fill in a W4 form for federal income tax withholding. Also the employer will have to pay the Medicare and Social Security payments of the employer. You will have to deposit this payment to the IRS. Hefty penalties will be assessed if you make the payments one day late. Unemployment returns have to be paid. States and local governing bodies may also require regular filings and deposits. In addition, you will have to pay W2 and W3 forms with the Social Security Association. If you don’t understand these requirements, you should hire an accountant.
TAKE ALLOWABLE DEDUCTIONS
For a startup, taking the allowable deduction is very important. The expenses you incur while launching your startup can be used for tax deduction purposes.
The value of your assets will depreciate over time. The IRS says that tangible items such as machinery, buildings, vehicles, furniture, equipment, and buildings are depreciable. Intangible items like software, patents, and copyrights are also depreciable. Make sure that you claim depreciation on both tangible and intangible items.
It is true that new entrepreneurs have quite a few things to do. However, this is no excuse for ignoring tax planning.