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Startup Tax Filing: Gather These Essential Documents to Streamline the Tax Filing Process

Posted by Kanika Sinha

December 15, 2022

With the end of the tax year looming, many startups, especially those with a December 31 year-end, are gearing up for the tax season. However, the journey to startup tax preparation can be complicated, even if your startup isn’t yet profitable. If you’re new to filing taxes for startups, or your business has changed since last tax season, there’s quite a bit to know before your tax filing deadline rolls around.

In this article, we’ll explore the essential basic steps and startup tax preparation documents needed for filing the correct paperwork, with insights drawn from Escalon’s seasoned tax management professionals.

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How to prepare for startup tax filing season

The first step in startup tax filing involves consolidating your tax records. Having organized documents is not only pivotal for an accurate return, but is also crucial in identifying eligible deductions and credits.

Because gathering and organizing your startup business taxes and documents is a complicated process, with strict rules and regulations, working with a tax professional that specializes in taxes for startups can be a strategically beneficial move. Specialized tax pros have the knowledge and expertise needed to navigate tax code, ensuring your startup business taxes are filed quickly and correctly.

When you’re ready to start your startup tax filing process, gather these documents

The first step towards preparing your startup business taxes is gathering your records, accounting documents, financial reports, and legal documentation. Here’s a basic list of the specific paperwork you’ll need for startup tax preparation, whether you file your own taxes or work with a professional.

1. Your startup’s balance sheet and income statement

The balance sheet and income statement are two critical financial records that paint a comprehensive picture of your startup’s fiscal health. These statements are instrumental during tax time because they include most of the financial information needed to determine your tax bill, deductions, credits, and more.

As a recap, here’s what these two statements show:

Your balance sheet offers a snapshot of your startup’s assets, liabilities, and shareholder equity at any given time. When pulled at the end of the year, it shows an overview of your financial balances for the full year-to-date.

Your income statement, also called a profit and loss statement, outlines your startup’s income and expenses, offering insights into the financial dynamics over a specified period.

Your startup business taxes will be based on the numbers shown in these two statements. That’s why they’re worth preparing and analyzing early on in your startup tax filing process.

2. Your startup’s prior-year tax documents

The next step in the startup tax preparation process is gathering last year’s federal and state tax returns. If you’ve filed in the past, these documents can offer a helpful historical perspective that makes filing again this year more straightforward.

By reviewing the credits and deductions you claimed last year, you can have an at-a-glance list of the benefits you can most likely take advantage of again this year—if those tax incentives are still available.

3. Basic business information

Next, pull together the basic business information needed to fill in the details of your startup tax filing documents. You’ll need your:

  • Legal business name
  • Business address
  • Your personal identification information, like your ID, social security number, and phone number

Double-check that your basic business information is accurate before you begin your startup tax filing documents. Any inaccuracies here can significantly delay the filing process.

4. EIN letter

Your startup’s EIN letter includes the specific number needed to identify your business and structure. Grab a copy of this letter for reference as you start your tax paperwork.

5. Other financial records

Depending on your startup’s age and size, you may need to gather these financial documents to complete your taxes:

  • Loan information: Records of loan payments and/or accrued interest.
  • Asset information: Receipts for assets such as equipment, property, or goods you’ve bought or sold over the year.
  • Income and expense information: Sales invoices, bank statements, receipts for payments, credit card statements, 1098 mortgage interest statements, and property taxes.
  • Deductible information: Records of health insurance payments, IRA contributions, home office, mortgage interest, and charitable giving.
  • Estimated tax records: Records of quarterly taxes that you’ve already paid in the year.
  • Wage and payroll information: W-2 wage and tax statements issued to employees, and Form 1099-MISC (non-employee compensation report) for contractors.

Frequently asked startup tax filing questions:

Q: Can I file my own taxes?

A: Yes, there’s no legal or IRS requirement to hire a tax preparer. However, startup tax preparation is complicated, and a professional tax service can help you capitalize on more deductions and credits you might otherwise miss—particularly those unique to early-stage startups.

Q: Does my unprofitable startup have to file?

A: Yes, even if your startup reported losses or had zero profits, you must file the necessary forms. However, the tax code allows some businesses to claim a tax loss carry-forward.

Q: Do bootstrapped startups with no revenue need to file taxes?

Yes. Tax filing is mandatory for all seed-stage startups and businesses in receipt of the EIN confirmation letter.

Q: What’s the due date for startup tax returns?

For most startups, the tax deadline falls in mid-April. However, you can file an extension with the IRS to push your final due date to mid-October. Take a look at the IRS website for the official tax deadlines for this year.

Key Takeaway

Startup taxes for small business owners can feel overwhelming, especially for new founders trying to decipher complicated tax codes and changing regulations. That’s why outsourcing startup tax preparation tasks, like report creation and tax optimization, can be a strategic investment. Not only can a tax professional save you considerable time and potential penalties, they can seamlessly navigate the complex, evolving IRS tax laws, ensuring optimal tax savings, accurate reporting, and filing at competitive rates.

Want more? In addition to taxes, accounting, bookkeeping and CFO services through its FinOps, Escalon’s Essential Business Services include PeopleOps (HR, benefits, recruiting and payroll) and Risk (business insurance). Talk to an expert today.

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Kanika Sinha
Kanika Sinha

Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.

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