Starting a new business is exciting and we all want to create a successful business; but it comes with responsibilities and many rules to follow. However, there are no guarantees for success. Among other factors, offering a product with quality or providing the best service, being consistent, persistent and utilizing your resources to the best of your abilities will hopefully be enough to achieve success. In this process, there are some strategies that would help to save money on taxes.
- Be the founder of the company
For the founding owner(s) of the new entity, one of the initial benefits is that it is usually cheaper to buy the first shares of stock (may cost a penny per share). Additionally, in case that this business venture does not succeed, the founding investor(s) can deduct these stock losses, much quicker than the capital losses you may be use to as a “passive” investor on your Form 1040. The founders can recognize more of their stock losses as “ordinary losses” as opposed to what may normally be “capital losses” which are subject to restrictions on tax deductibility. For example, a non-founder partner could deduct up to 3,000 in capital losses annually (if no other capital gains) on their personal Form 1040; however, a founding partner could deduct 50,000 if single and 100,000 if married, in one year (as of 2017) reducing “ordinary” taxable income. - Include business expenditures incurred before your business was set up
If you are setting up your business, it is important to start recording costs properly. In the initial stage, it is essential to inform your accountant what you have invested into your business even before you formally set-up or incorporate your company with the state and federal governments. Many investors build a business plan, contribute equipment and inventory, conduct a marketing survey, incur legalravel and educational cost amongst many other expenditures that may be a business asset or a business expense. Get the advice from tax professionals in regards to what is tax deductible for your business entity and the related “compliance” requirements your business may need to maintain to stay open. Realizing your requirements and supervising your “developmental stage” company financial reports prepares you to determine your future success and taxation. - Use credit or financing over leasing
In tax accounting, and even financial theory, using credit, debt financing or capital leases to buy business assets, brings more tax benefits compared to operating leases. Why? Because when you buy, the asset is on your balance sheet after you pay the initial down payment (unfortunately, the liability may be on the balance sheet too). However, now the business may be able to create depreciation expense (possibly 100%) of the financed business asset within the first year and can deduct the interest expense portion of each financed payment. Don’t forget though, cost of ownership does come with repairs, maintenance, improvements and County Tangible Personal Property Taxes assessed on certain business assets. - Organize your business expenses
Independently of the stage you are at this moment, keep all of your business expenses organized, categorized and up-to-date. Getting, and staying organized, brings a lot of benefits and could save you taxes, penalties, interest and stress. If you aren’t the kind of person who enjoys keeping things together or is good at accounting and record keeping, try to use technology and software applications to assist efficiently and to make the process easier. There are many inexpensive phone apps, online accounting programs, even credit cards that can help to track, summarize and secure transactions and even download banking and credit card transactions transaction information directly to your accounting software to perform reconciliations for accuracy and to provide useful financial analysis. - Research the Rules and Facts Before you Begin Business
Our advice to entrepreneurs and business owners is to research the facts for your requirements independently and those that are applicable to your specific case, industry or tax and immigration situation. Do not rely on the opinions or words of non-tax professionals, even be careful with “professional” opinions. Each case may be different from someone else’s’ case. Consult the necessary tax experts or professionals qualified to assist in finding the proper answers in writing from the governmental tax authorities.
At Rosillo & Associates, PA, we are licensed Florida Certified Public Accounting Firm looking forward to assist in tax compliance for multi-national business-owners and foreigners to the US.