What's the best way for a startup to handle taxes?
Opinions expressed by Entrepreneur contributors are their own.It is understandable for a startup to be cost conscious when it comes to expenses such as tax preparation. Entrepreneurs would rather use their limited capital towards spending that results in more revenue.
However, proper tax preparation is important for a host of reasons, one of them being mitigating audit risk. With that said, let's review some of the available tax preparation options.
CPA or Enrolled Agent
The tax preparation service provided by a reputable CPA or enrolled agent is likely the least risky method of filing your taxes. The cost can generally range from $250 to $600 per tax return which depends on the financial complexity of the business and the CPA or enrolled agent's experience level.
Since you are a startup company, it would be wise to negotiate with the tax preparer by explaining your situation. In some instances, tax preparers will charge a reduced fee in hopes that a company may become a long-term client.
Also -- and this is very important -- when choosing a tax preparer, make sure to do a thorough background check. Ask for referrals and go to the AICPA website to review CPA licensure status and the IRS to review the same for enrolled agents. You will be able to verify that the tax preparer is in fact a CPA or enrolled agent and if they have any disciplinary actions on their record.
Online Tax Software
The online tax software space continues to grow at a rapid pace as more and more individuals and small businesses are using it as their preferred method for filing taxes.
TurboTax for business is the most widely used tax preparation application on the market. The pricing is around $130 for just the federal tax return -- there would be an additional fee to file a state tax return.
TaxAct (Now Part of H&R Block) for business is considerably less at $40 for just the federal tax return. They both are easy to use but TurboTax has better functionality.
Online Tax Advice
The company I founded, BIDaWIZ.com, offers affordable and reliable tax advice online through our network of verified CPAs. The pricing is based on the complexity of the question and you can choose the CPA based on their credentials, fee and customer ratings. You can also message them throughout the process for follow-up questions or more clarity on the issue.
Do It Yourself
The final option is to process your tax return by yourself or in collaboration with your other business partners. I don't recommend this as the cost for filing improperly is significant.
Whichever option you choose for your tax preparation, please be aware that your company is responsible for mistakes even if a CPA signed off on the tax return. With that said, please make sure that you double check the tax return for errors and mistakes.
Good luck with the venture and the tax preparation search.