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The Worst Reasons To Do Your Startup’s Taxes Yourself

Posted by Early Growth

February 15, 2017    |     4-minute read (730 words)

Recently we were talking with members of our CFO Team about what mistakes they are seeing in the startup ecosystem. We always look to use our vantage point of working with hundreds of startups nationwide to see what advice and knowledge can be gathered to better serve early-stage entrepreneurs.

One issue is surprisingly simple yet can have disastrous effects: deciding to go on your own when it comes time to prepare your business taxes. This has the potential to hamstring your company for years, or worse force it to close. This choice can cause all manner of challenges that far outweigh the original cost savings. 

Here are some of the reasons we hear, and why going with a tax professional makes better long term sense.

"We want to do it ourselves, because we are just starting up."

It makes sense that the same DIY ethic that drives you to launch your own company would spill into all aspects of management, but tax work is the last place to learn and grow on your own. Tax laws are constantly changing. Whether it is new deductions and incentives introduced, or the actual nuts and bolts like filing dates. Missing a crucial date could lead to penalties and delays. A simple google search is not always going to keep you informed of all the most current info you need for compliance and due diligence. It's crucial to work with someone who is constantly abreast of the changes and implications of U.S. tax law.

"We have offices in several locations so it is easier to centralize it in house."

This one is a red flag. Often, firms that are spread out in satellite offices nationwide think that they should collect and handle taxes in-house with one main center they self-designate. What they don’t always realize is they may have State Nexus issues. Obligations can arise from any state that deems you have statutorily sufficient transactions on which to impose a tax.

Even if you have the opposite, such as a single office registered in Delaware, you may not be off the hook. If you do a significant amount of business in other states such as N.Y., N.J. or California you can find yourself having state tax complications for which you were unprepared.

"We are not at revenue yet, we are mostly developmental at this stage."

There are tremendous changes to the incentives available for R&D focused firms right now. In fact we recently released this white paper on R&D credit benefits derived from our experience handling and preparing for companies that use this lucrative credit. Handled properly a firm, even one with no declarable income yet, can receive as much as a $250,000 credit annually. With this boon, there is also a strong caveat: don’t do it alone. There is a higher than usual risk of audit and a professional is essential to conduct the right tax credit study to determine the specific credit(s) for which your startup qualifies.

"We have a staff member who has prepared taxes in the past."

Even with a currently knowledgeable accountant on staff there is a vast difference between each sector and business. Within those differences are the familiarity of knowing what triggers and guidelines may cause an audit. If for instance you are a SaaS company and load too many expenses in COGS, you may inadvertently create a lower than average margin triggering investigation. In addition, pulling talent away from core competencies in the early stages of your company is a dangerous proposition. If you and your team are burning the midnight oil to get to MVP, or revenue, do you really want to peel off a member of your team to deal with your company's unique tax situation?

While those are a few of the common objections we face, the best reasons to have your business taxes prepared and handled by a professional are the time savings and peace of mind. As a developing startup, the last thing your company needs is to divert time away from core capabilities that truly matter. Every effort spent taming taxes in house is one less spent on product refinement and customer acquisition.

If you would like to know more about how we can make your taxes and finances run smoother reach out and contact us for a consultation.

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