4 Tips to Help Your Business Stay Away from Tax & Legal Issues - Our Guide
One of the biggest concerns you might have as an entrepreneur, other than the entire process of setting up your business, would be how you can avoid any legal and tax problems. If you have started a business elsewhere before, you might have an idea on how to go about it. However, whether you have begun one way back or you’re just about to start your first business, you might have no clue on how to go about avoiding these problems.
To help you out, here are four tips to help you stay away from legal and tax issues:
1. Set up your business entity
Before you hire people to work for you, before you look for investors, and way before you start making your products or offer services, there is something vital that you need to do: you need to create a business entity.
Why is this important? Doing so will help you avoid any tax issues regarding mixing up any business-related assets with personal assets. In other words, you create a fine line between what you own and what the business owns, even though it is technically yours, still.
However, if you are wondering which entity you should pick from, we highly recommend that you go with Limited Liability Company (LLC). This is because LLC is the quickest and simplest entity to begin, not to mention it costs the least amount of money. All you need to do is head online, with or without a lawyer. Plus, when you start at LLC, you give yourself the chance to learn what kind of business structure works and doesn't, meaning that even if LLC isn't the right entity for you, change is always an option.
2. File an election stock
After you have found your company, do file an 83(b) election with the Internal Revenue Service (IRS) as soon as possible, preferably within a month. This is vital because, early on, the market value of your business is pretty much a zero.
If you delay filing the election, you might end up with a massive tax bill that you won’t be able to cover since you’ve barely started your business. Because of that, begin immediately and document the division of ownership between individuals, along with other vital data like roles, contributions, and so on.
3. Implement different recording systems
Your ability to record different things quickly and efficiently will depend solely on the systems you have implemented. While you can make do with the traditional shoe-box method of collecting experiences, you must switch immediately when it comes to tax and legal purposes.
There are plenty of systems you can choose from. Since you are a new business, we highly recommend accounting software such as FreshBooks to assist with your bookkeeping. At the same time, we also recommend that you work with an accountant. That way, all the necessary documents and records are appropriately recorded.
4. Modify your business entity when needed
Now that you have been running for a while, you might start to find out what works and what doesn’t in the structure of your business. With that in mind, you are given the option to continue being an LLC or change it up to something else, like partnerships, sole proprietorship, and the like.
We highly suggest that you choose the entity that supports your growth. For example, as an LLC, while you might not have preferred stock offered, if your big investors want it, you might want to change to a corporation like C-corp.
Staying away from any tax and legal issues is a constant battle. It is not something you deal with in the beginning or at the end, but continuously as you run your business. Because of this, having good financial habits such as on-time bookkeeping and documenting is essential to make sure that you don’t find yourself in trouble for missing information and the like, which can land you a massive penalty. At the same time, accurate record keeping will ensure that you’re not paying more than you should, and not less than what is required.
If you are looking for an accountant in the Gold Coast to work with, we’re here for you. Contact us through our website.