In my years as a CPA in San Francisco, I have worked with several tech startups, helping them with accounting, financial planning, and filing taxes. I have noticed a common misconception among these budding entrepreneurs. Since the company is still in its early stages of business and pre-revenue, they assume there won’t be any tax filing requirements.

Here’s where the error starts, leading to dire financial consequences for the company. Even for a new business yet to generate profitable revenue there are tax obligations. It helps you prevent major tax troubles in the long run, not to mention, save money in tax deductions.

So, pay attention, as I am about to explain some common tax mistakes every tech startup should avoid.

Losing track of finances

No matter how new or old; how small or big a business, accurate and updated financial record-keeping is a must. Tracking all expenses improves the bottom line and credibility of your business. Tax filing and financial planning become easier with the data.

As you work on raising capital, investors will perform audits as a part of due diligence before they give you the money. An updated financial record helps you avoid discrepancies that can raise doubt about your company, costing you a potential investment. I understand that keeping a full-time accountant and bookkeeper on payroll might be problem for startups. You can reach my team, and we can work out a solution without breaking your bank.

Incorrect Classification of Employees

If you think you can skip payroll taxes by classifying your employees as independent contractors, you are gravely mistaken. Rectify this as soon as possible to avoid getting on the wrong side of the IRS. There are notable differences between an independent contractor and an employee on payroll. For instance, if you dictate how and when to work, they are your employees. If you need help with proper classification, contact my team for support and other accounting and tax filing needs.

Failure to File 1099s

It is common for startups to work with part-time contractors and consultants. If so, you should issue 1099-NEC to them at the end of each year. The 1099s help the IRS track who is getting what and by whom. Without filing your 1099s, it becomes difficult to file tax returns accurately. Additionally, it raises a red flag for both parties, leading to an IRS audit.

Mixing Personal and Business Expenses

Do you use your credit card for buying office supplies or other business expenses? Stop it immediately! Mixing business and personal expenses messes up your financial records to the point where you can lose track of your finances. It becomes a headache to sort out this mess during tax season. You could miss out on some tax deductions because you lost the receipt.

Not Paying Quarterly Taxes

As a startup owner, you are not required to make quarterly estimated tax payments unless your anticipated tax liability is projected to exceed $1000.. But that’s the only pass you get! So, make it a habit to pay your quarterly taxes without a miss. If it is too much for you to keep track of the tax filings, you can always get help from professionals. My team can help you estimate the annual taxes and provide with accurate filing information throughout the year.

Wrapping Up

If you have any queries about tech company CFO service in San Francisco, CA, you can consult my team. We will be happy to assist you with all your tax filing needs and ensure your compliance.