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Translating Tax Compliance for Entrepreneurs

Calling tax law “vast and complex” is an understatement. It’s also a reality that can lead to confusion when trying to interpret any and all related regulations. Just look at some of the acronyms: AMT, DPAD, NOL. It all reads like a bowl of alphabet soup — and makes about as much sense as one.

The biggest contributor to confusion about tax code is its fluid and always changing nature. A survey by Thomson Reuters on the annual cost of compliance reveals just that, stating that officers feel “regulatory fatigue and overload in the face of snowballing regulations.” Worse, 70 percent of respondents don’t see a change of pace in sight.

So you can see why it’s important for a startup founder to understand tax compliance’s constantly evolving dialect. Learning the terms — sales tax, payroll tax, state tax — and what they mean can send a startup founder’s head into a tailspin.

But the sooner you acquaint yourself with key verbiage — or hire someone who knows tax law well — the less likely your business is to suffer a costly miscommunication.

Translating Tax Compliance for Entrepreneurs

Knowing the lingo is crucial

Learning context is just as vital as learning the words of a new language. “Bare” and “bear” have identical pronunciations, yet the former is an adjective and the latter is, well, an animal.

Tax compliance works in a similar fashion. Sure, there are countless credits, deductions, and exemptions a company can capitalize on, but it’s important to understand when and how to apply them. Knowing which compliance matters are one-time deals and which ones have to be maintained consistently is essential to keeping surprises to a minimum for a young company.

It’s led me to discover more than a few tax balance surprises over the years. When it comes to tax law, it helps to approach it the same way you would learn a foreign language. Stick to these five steps when translating tax laws for your startup:

#1. Hire the best translator you can find

Engage a tax professional prior to formally establishing the legal entity for your company. Establishing the correct structure from the start can save a lot of heartache down the road.

For example, if you start off as an LLC, you’ll limit the potential for outside capital investment. Most investors prefer to invest in corporations, a bit of information that a seasoned tax specialist should be able to convey to a startup founder.

#2. Communicate with that professional prior to any major event

The tax specialist at a startup should be a consultant on any and all major moves. Whether it’s engaging in a new round of financing, taking your business across state lines, restructuring your company, or participating in an exit event, communicating with a tax professional before acting is key. It’ll ensure you’re in a better position to use tax minimization strategies prior to finalizing a transaction.

For example, a client of ours recently switched from an LLC to a C corporation to attract additional funding from outside investors. But, the owner was unaware that a company only has 3.5 months to file an LLC form once such a conversion is made. As a result, the IRS issued thousands of dollars in late filing penalties that caught our client off guard.

We were able to speak on the company’s behalf and get the penalties waived because it was an unintentional oversight and not a deliberate act of omission. The client came away with a greater respect for the IRS’ nuanced language and those who are fluent in it.

Engaging a tax professional knowledgeable in these types of transactions can yield a tax-free conversion and keep a company from burning critical cash on tax penalties.

#3. Take notes, and go back to them regularly

Tax law requires companies to maintain an accurate set of books and records. If your firm is ever audited, these will be the first things the IRS requests.

Ensuring that any resulting lower effective tax rate is achieved legitimately and not through compliance shortcuts is a top priority for the IRS. Only 6 percent of businesses currently file under corporate tax code, down from 17 percent in 1980.

If these records aren’t accurate and properly documented, it will be easy for an IRS auditor to make adjustments and assess additional taxes and harsher penalties.

#4. Be careful how you classify employees

Establish the status of all your employees immediately, if not sooner. The IRS is particularly sensitive to this because it can lead to billions of dollars in lost tax revenue.

Worker classification issues most frequently crop up when employees are incorrectly tagged as independent contractors. These issues can also occur when common law employees are categorized as statutory employees.

It should be noted that while employment audits are often initiated at the state level, the information is shared with the IRS. What may start as a manageable state audit can quickly become a federal case if something isn’t right.

#5. Conduct a state nexus study as the company grows into other markets

It’s important that your company properly files and pays taxes in all of the jurisdictions in which it operates.

With every company I work with, I proactively check to determine whether it’s in good standing in Delaware — where most companies incorporate — and whether its annual franchise taxes are paid and updated. I’ve found too many companies are unaware their responsibilities didn’t end with incorporation.

And be forewarned — this is something that interests more than the tax authorities. A potential buyer of your company will carefully scrutinize this as part of the due diligence process.

Clear up any compliance confusion

Many founders are new to business ownership and the complexities associated with keeping a company tax-compliant. For some, their only prior experience with taxes has been filing their annual personal tax returns using TurboTax or some other online tax software.

That just makes dealing with the laundry list of potential tax issues and the constant updating of regulations that much more difficult. Tax compliance fluency won’t come overnight for a startup. But the sooner a company’s founder learns an appreciation for the language — and the role those fluent in it can play in applying it — the less likely the company is of speaking, or filing, out of turn.

Can you or anyone in your company speak conversational tax compliance? If not, get to it.

Image: Hand writing Tax Help with red marker on transparent wipe board.


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Anjum Tunuli is the chief tax officer at Early Growth Financial Services, a firm that addresses the lack of on-demand financial support available to startups. With more than 12 years of experience working with small to mid-sized companies and their ownership groups, Tunuli assists EGFS’ clients with tax and regulatory compliance and other valuation concerns. Tunuli draws on innovative thinking to understand the full financial impact of tax planning on his clients’ business operations. Read more tax advice from Anjum. http://earlygrowthfinancialservices.com/

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Comments
  • Well done Philip for showing such leadership and innovation, you’ve now build the momentum to make Bubblegum.ie a success. I really like what you had to say about not taking no for an answer in business, that’s the type of determination we need in Ireland right now. Thanks Sian for another great interview – you’re becoming the first lady of TYB 🙂    

  • This is a great idea and apart from working to increase Irish sales, it works to promote people’s understanding too regarding what they are putting in their shopping trolley – just how much of our weekly shop is Irish.  

  • I agree Lorna. I must admit I’d never thought of it before but after this interview I will keep a better eye on it now. Thanks for the comment

  • Thanks Niall. Philip really has some great ideas which came across so well on the radio I knew he would be worth speaking to. Glad you liked the interview.

  • I read this article at lunchtime today and then couldn’t remember the name of the company this evening. I remembered it was something his kid had mentioned but knew it was not related to the product.

    So I went on to Google.ie and typed in the usual keywords you might think would be associated with the product, coupon, coupons, coupon ireland, coupons ireland, grocery coupons ireland and nowhere did Bubblegum appear until the bottom of SERPage three had a result for this article.

    I am a digital marketing student and was surprised all your competitors are ahead of you considering the owner has an internet and e-commerce background ?

    Suggestion : If you are going to give your internet business a cool name that has nothing to do with what you are selling or the keywords your customers may type into a Search Engine, then make sure you have a good SEO person onside to ensure your website is correctly optimised to get found.

  • Do a search for “smart phone” or “tablet” and see how far back are Apple? 🙂

  • Angie O’Brien

    Excellent interview Sian – I’ve been using IrishDeal.ie for my coupons but will definitely check out Bubblebum

  • Thanks Angie – you might want to check the spelling of Bubblegum.ie though 😉

  • I commend your inspiration Philip and your vision for Ireland and our consumers. I went on the site, and after a few clicks, was diverted to 5 different sites, one offering a direct printing of a coupon (score!!) and for the others I had to divulge information.

    The cynic in me thinks, I am not signing up for a 60cent coupon, so that company can gain a “fan”, or add me to their mailing list to “send” me offers every day. I also resented the fact I may have to print out 5 different coupons on an A4 each on my expensive home printer, and remember to bring them with me to the shops. I did however appreciate that I found 5 offers on 1 site, and that saved me time.

    What I expected as a consumer, after reading the interview, was to go to the (wonderfully named) site, gather my coupons, print them and head off to do my shopping. Is this even viable? And is it something Philip is thinking about for the future?

    I know some people would do anything for money off, but surely the easier it is for the consumer, the more likely they are to use the site. My musings from a consumer POV.

    It’s a great business idea, and I wish Philip well with the growth of bubblegum.ie

  • Eamonnobrien

    Great story and love his comments on not taking no for an answer – determination pays.

  • Thanks Lorna.  Buying Irish is something we all need to be aware of, you’d be surprised how many “Irish” brands are no longer manufactured here.

  • Philip_bubblegum_ie

    Thanks Niall, it’s just a matter of getting the message about the site out there for business & consumers to start using it.  As for not accepting no for an answer, right now may not be the best time for someone, but tomorrow they may have got their second cup of coffee 🙂

  • Philip_bubblegum_ie

    Thanks Eamonn.  Really appreciate it

  • Philip_bubblegum_ie

    Hi Anton, 

    Thanks for the comments.  In the next rollout of the software powering the site, coupons are going to be straight click & print.  Some clients want traffic directed to their site & we will comply with that in those cases. 

    The problem with having an app or phone based barcode display is the the retailers here aren’t geared up for it.  If you consider that to just pay with a credit or debit card, each checkout has to have a terminal which has to dial for authorisation each time (as opposed to a permanent shared connection), it’s not feasible right now for them to scan a handset screen with barcodes on it & then receive payment of redemption.  It would take a huge change of POS hardware/software & retraining to just be able to do that.  And of course there’s the users who don’t have a phone with a large enough display.

  • Philip_bubblegum_ie

    Thanks Angie !  Many more great grocery offers coming.

  • Philip_bubblegum_ie

    Thanks for the comments Denis.  Unfortunately Google Ireland is pulling in details from mostly the .com version of itself.  This is most probably down to the fact that we’ve never really had a coupon culture here.

    We’re working on SEO & hope to be achieving a higher score soon. Incidentally, we weren’t going for a cool name, it just happened to be available & we liked the sound of it 🙂

  • I was jesting somewhat with the apple comment but thanks for your response and wonderful explanation, It’s appreciated and sorry that the Disqus swallowed it up the first time. Why don’t you consider joining the team here at TYB?

  • Guest

    Actually better yet, why don’t you consider joining the team here at TYB?  

  • Guest

    Actually better yet, why don’t you consider joining the team here at TYB? 

  • Hi Niall, thanks for the invite, not sure I know enough about Digital Marketing yet to be of any real use to your readers but would be happy to help out any way I can. D

  • ruzzel01

    The most popular method is to offer promo codes. There are
    many websites that aggregate coupon codes. These are free to use as well and
    offer both the end user and the merchant savings. bluepromocode.com

  • Ciara Jorge

    i buy coupons for my food most of the time

    Printable Grocery Coupons




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