Many small businesses put off hiring an accountant to the very last. Yet one of the most important elements of any startup or small business is maximizing profit. And one of the biggest factors that can impact your bottom line is what you are taxed. Many San Diego companies attempt to reduce their tax expenditures by getting tricky with the state they choose to pay their taxes in. Depending on where you are getting your information, you can make a very unwise decision regarding where and how you are claiming your taxes, which can have disastrous long-term consequences. At Profitwise we help businesses avoid all of these legal pitfalls. One of the smartest first conversations a small business startup can have is with a great tax accounting firm like Profitwise.
There are several common ways that small business owners go about setting up their business entity:
- They may try to do it themselves (We don’t advise this, but hey we are financial professionals so this isn’t surprising)
- Use an online service like Legal Zoom
- Hire an attorney
The last option might seem like the safest and wisest option. Don’t be fooled by billable hours. Just because attorneys claim to know tax law doesn’t mean that they fully understand the tax implications of Incorporation. We see this mistake made many times in our profession.
Are You Consulting With a Tax Accountant As You Start Your Small Business?
One of the most important meetings you can have as you begin your small business is with an accountant, who has years of experience consulting with small operations like yours. We’ve seen all of the mistakes and successes from various enterprises. Whether it’s cash flow or taxation, we can help you set up the right financial and legal structure that will set your fledgling company up for a great future.
We Have Nothing Against Lawyers If You Need One — But Let’s Try Not to Need One!
We don’t want to disparage our esteemed colleagues in the legal profession; that’s what comedians are for.
All joking aside, there is a time and place for lawyers. They have many important purposes within the business world. We just would like to prevent you as a small business owner from having to work with them as much as possible. Who wants legal problems? Anyone? After all, isn’t the best medicine preventive?
Which is why consulting with an expert small business accountant in San Diego, who understands all of the legal and financial implications of taxation, and the latest tax laws in the various states is so vital. Let’s solve problems before they happen, why don’t we?
Case Study: The California Window Cleaner Trying to Save $800
We had a client who was advised to set up his business in the state of Nevada, even though he lives in California and does business in California. The goal was to save him $800 due from the franchise tax board. He’d been doing it for the 8 years before coming to us.
Sneaky Tax Strategy Can Seem Smart at the Time
On the surface this might seem like a good strategy. But this is technically not in accordance to the rules of the state of California. This is a “ticking time bomb"!
If the state catches up with this business owner, it will ding him with all of the missed fees. ($800 in a year may not be a lot of money to a business. $800 multiplied by 8-years starts to add up.)
Are You Considering Your Small Business’s Liability? An Expert Tax Accountant Will!
This business owner that’s been operating in California, but running a Nevada corporation has no legal corporate liability protection. This black-hat accounting isn’t just sketchy, it’s dangerous.
What happens if he gets sued? This client runs a window cleaning company. What’s the chance that an employee at some point is going to get hurt? What’s the chance that damage to a property that he’s working on is going to happen? The liability there is endless and with his prior setup he had no protection against potential law suits.
Once legal problems occur, “sneaky” tax structure strategies will come to light, and the problems will ensue.
Are You Planning on Getting Audited?
No one thinks that bad things are going to happen to them—hurricanes, tsunamis, tornados, or IRS audits. But they happen.
What are you going to do if you get audited? Stay in business long enough, do some “sneaky” things in the tax department, become a successful business, and you increase the chance of getting audited. And when this happens, the decisions you made in those first years can hurt you.
You can’t just think about the short-term tax implications of your corporate structure. Someday, hopefully, you will be big enough to not be considered a startup any longer with startup challenges. But then you’re liability will be greater. The smart and experienced small business tax accountants at Profitwise consider these issues. We can help you make choices that either reduce the chances of being audited, or help prepare you for being less hurt by one if it happens.
The Most Important Conversation You’ll Have as a Startup
Have you had that important conversation with that small business consultant? Do you know what you need to understand about your taxes? Are you considering your state of business and how that plays into your tax strategy? Are you thinking these issues through the long-term?
If you aren’t having these conversations with a very experienced and respected San Diego small business tax accountant, then call us now. We’d love to chat today and discuss your small business’s situation and find the best strategy right away.
About the Author
David Heistein, CPA
Dave is co-founder and managing partner at Profitwise Accounting. Dave is a Certified Public Accountant in the state of California, as well as an advanced QuickBooks Pro Advisor and Instructor. As a small business owner, he is dedicated to educating and informing other business owners on bookkeeping and accounting matters.