According to the Tax Foundation, the U.S. tax code now consists of over 10 million words. When you’re navigating the excitement of entrepreneurship, funding, and growth, sitting down to knock out a tax return can be, well, devastatingly boring, not to mention confusing. But the fact is, the way you handle taxes can make or break your startup’s ability to make profit, grow and in some cases, survive.
To keep you sane this tax season, here are the five most important accounting tips to help you get through on top:
1. Lock down a local CPA
If you’re serious about the financial future of your startup, be sure to establish a relationship with a trusted CPA early on. And no, not TurboTax or one of those strip mall tax office chains (as tempting as the dancing signs out front may be).
Invest the money because an experienced CPA’s expertise is well worth it for your startup’s financial health. Hiring locally is important to help founders navigate state-specific tax credits. Filing for these credits can offset things like payroll taxes and will be incredibly useful for your organization down the road.
2. Purchase accounting software
Startups need to show that they’re serious about their business, especially when seeking funding from investors. Managing your books on a Google doc is a telltale sign that you’re probably not taking fiduciary ownership or stewardship of your startup. With the incredible capabilities and nominal fees associated with today’s online accounting solutions (like Xero or QuickBooks Online), there’s really no excuse. These end-to-end solutions are aimed to help founders navigating the startup ecosystem. Xero recently launched Taxtouch, a free mobile app that’s like Tinder for taxes. You swipe left or right to easily categorize your expenses for tax purposes — brilliant.
3. Be smart about categorizing expenses
One major mistake startups make over and over again is over-categorizing and over-complicating their business expenses, making things incredibly confusing to navigate come tax season. Founders should always have an eye on the key metrics and data impacting their business. In accounting terms, this is called the “chart of accounts.” Over-categorizing muddies the waters and makes it difficult to keep cash flow visible. To avoid this, categorize your expenses into three main buckets — sales and marketing, development, and general/administrative.
4. Don’t tackle payroll on your own
One of the best pieces of advice for startups? Don’t mess with payroll taxes. Invest in a software that will not only handle paying employees, but also all the necessary tax filings (Gusto is one example). When you make a mistake on your income taxes, you can always revisit and amend. But if you mess up payroll taxes, not only will you pay interest in penalties, there can also be criminal charges for you as a founder. The takeaway? Payroll taxes are not to be trifled with.
5. Take advantage of local resources
Here’s the good news about navigating tax season for startup founders — you don’t have to go at it alone. More and more, co-working spaces and incubators host CPA firms for office hours. Don’t be scared to take advantage of the tax resources your local startup ecosystem provides. Speaking of local, check your address to see if your organization qualifies for the Opportunity Zone Job Tax Credit — you can receive $3, 500 for every job created. More money in your pocket for next year, when you’ve scaled enough to have your own accountant on call!
As the CEO and founder of a company dedicated to helping businesses build a strong financial engine, Kenji Kuramoto of Acuity knows what it takes for startups to prosper through each stage of growth. Actively connected in the Atlanta startup community, Kuramoto and his team serve as advocates for early and growth-stage technology companies. Tweet them a question using #AskAcuity or shoot them a direct email at firstname.lastname@example.org.