Do you know that in 2023, over 5 million new business applications were submitted in the U.S.? In case you are one of this wave of new entrepreneurs, you must know that it is a huge step to begin your own business. But with tax season rapidly approaching, you might be wondering: What should I know about taxes as a startup?
That is exactly why startups tax management is so essential. Understanding how taxes work for your startup will help you avoid penalties, save money and maintain your focus on growing your company.
Here are a few suggestions to help you with your 1st tax season smoothly.
1. Know Your Business Structure
Your business structure impacts how you pay taxes. Are you a sole proprietor, partnership, LLC, or a company? Each has different tax rules.
- Sole proprietors and single member LLCs report business income on personal tax returns.
- Partnerships and multi-member LLCs file a separate return but pay no taxes directly – they pass income and losses to partners.
- C-corporations file their very own taxes and pay corporation tax.
- S-corporations also file separately but pass income to shareholders.
Understanding your structure will be the first step on the startups tax journey.
2. Track Every Dollar
You should record all income and expenses. Track everything from rent to software tools to coffee with clients.
Tools like QuickBooks, FreshBooks & spreadsheets might help. Organized records allow it to be simpler to file taxes and could lower your taxable income with deductions.
3. Know What You Can Deduct
Startups miss out on essential tax deductions because they don’t understand what’s permitted. Common tax deductions include:
- Business travel.
- Home office expenses.
- Marketing & advertising costs.
- Equipment & software.
- Professional services (like legal or accounting help):
One of the best ways to reduce startups tax is claiming all your eligible deductions.
4. Set Aside Money for Taxes
If you are self-employed or even operating a business, Taxes aren’t rolled into your earnings. An overall rule is usually to put aside 25-30% of your net earnings for state and federal taxes.
You can avoid penalties by making quarterly estimated tax payments. Better pay a little each year than get troubled by an April surprise.
5. Hire an Accountant
Even if you understand your numbers, taxes can be complex – particularly if you are just starting out. An experienced accountant can help:
- File the proper forms.
- Take the proper deductions.
- Avoid costly mistakes.
- Save time & money.
If you feel overwhelmed, you need an accountant. Whether it is year-end tax filing or daily bookkeeping, finding an accountant might be the very best business choice for your startup.
Final Thoughts
Your very first tax season 2025 as a startup need not be challenging. You can do it with expertise, tools & support. Whether you get it done yourself or hire an accountant, remaining making an informed decision is the key element.
Keep in mind, startups tax is much more than filing forms; it is also about setting the financial foundation of your company. The earlier you get it right, the greater your chances of future success are.
