Starting your own company was probably one of the most exciting times in your life. Every choice you made was personal, and now your business is truly a reflection of your hard work and determination. Now that it’s tax season, you might be wondering if you have to file in your first year. Here are a few tax tips that will make you a bit more knowledgeable about your obligations.
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Do You Have to Pay Tax in Your First Year of Business?
Yes, you absolutely have to pay taxes for every year that your business is running. It’s never too early to begin the process of educating yourself on proper business tax law. It’s also a great idea to talk to a professional business accountant or purchase business tax software to help you keep track of business expenses and revenue.
First Year Business Tax Breaks to Take Advantage Of
Filing taxes isn’t all bad. In fact, there are a lot of transactions that you can use as deductions in your first year of business. These deductions will reduce the amount of taxes you’ll have to pay. So let’s make sure you find all the deductions your company is allowed.
1. Start-up Costs
Up to $5000 of your start-up purchases of your new business can be deducted from your taxes. Be sure to keep all receipts from your purchases. You may make deductions based on items used to build your business, such as office supplies, just be sure to keep records of all your purchases. If you have more than $5000 of start-up costs, you may be able to spread out those deductions over subsequent years. Talk to a tax specialist about this.
2. Organizational Expenses
You can also take up to $5000 worth of deductions on what the IRS classifies as organizational expenses. If your auto shop needed a business license, the cost of that license can be a tax deduction. These organizational expenses do not include the cost of mechanic school, but do cover more immediate start-up fees like starting a limited liability company (LLC).
3. Research Costs
Remember when you were researching starting your business? Perhaps you bought some supplies to make a few bars of soap in anticipation of starting your own artisanal soap company. You can write off some of these expenses as research costs as well. Be sure to keep records of all those purchases. If you have a question about a particular purchase, it’s important to contact a tax specialist.
4. Fun Expenses
Can any expenses for your business be considered fun? In fact, there are some expenses that qualify, including any further education, travel, and business meals. Many people consider these expenses the perks of owning a business. Although you cannot write-off any education that you received before starting your business, you can deduct fees for any professional development courses you take while in business.
You’ll just need to be able to prove that these expenses directly impact your business. If you are required to travel for business meetings or have a weekly lunch with clients, you’ll be able to deduct these expenses as well. Keep every receipt for every purchase you make. You never know what your accountant may tell you is a deduction.
Remember, it’s never too early to begin preparing for your first business tax season. It’s important to commit to keeping excellent records and accounting of everything relating to your business. There is no such thing as too much recording. To make sure you don’t miss a single one, utilize your bookkeeping software or contact an accountant who is knowledgeable about small businesses.