It’s tax season! So let’s talk about taxes. TLDR - Hire someone to do them asap, if that hasn't already happened...
Before we talk taxes, this article is not about politics. Taxes pay for our governments to run. They fund schools, fuel defense spending, make our roads drivable, maintain social programs, pay down national debts, fund research, and much more. Putting politics aside, taxes are necessary for every organization, and most organizations look to minimize the tax liability both for the corporation and for the individuals paid by the corporation. So no matter our personal feelings about taxes, it's something that is our right and duty to take care of annually and/or quarterly.
The tax code is complicated. Individuals can often do their own taxes but organizations usually need help. This comes in the form of paying someone to file our taxes. Let’s go through a few important aspects there.
Since it’s tax season, it’s worth mentioning that every organization needs to file tax documents every year. It doesn’t matter if we lost money, if we didn’t cross a certain threshold of income to think it matters, if we’re a non-profit, or if we didn’t raise any capital like we thought we would. If the organization has been incorporated, we need to file our taxes.
Tax Preparers (and more)
Previously we looked at how incorporating a company impacts fundraising. The first thing a tax professional will help with is to explain how those articles of incorporation impact how (and when) we pay our taxes. It’s always great to consult with a tax professional on the repercussions that each method of incorporating a company will have on our tax burdens before we file those articles of incorporation. If we didn’t we can always change things for future years if need be. But for the last year we have what we have.
We’ll work with that tax professional once a year to make sure we’re legal and all the appropriate paperwork is filed. More than likely, they will have specialized software to help with the process. We’ll also likely meet with our tax professional (or someone in a firm) to file, and if we have a tax burden off income, to pay quarterly taxes. We may even combine the bookkeeping responsibilities with the firm handling our taxes.
We should immediately start keeping our books in a way that the filing and bookkeeping is easiest for those we outsource those tasks to. Many accountants and tax preparers have software that integrates with Quickbooks or other popular bookkeeping software packages. The person we hire should like, and if possible integrate with, the systems we’re using.
Being Prepared
Part of filing taxes is to take expenses out of income, where the appropriate expenses are known as write-offs. We’ve all thought some things should be write-offs that aren’t appropriate. Or considered various expenses as inconsequential when they actually added up growing to the point that they impacted our profit and loss. The tax code can be incredibly pedantic about such things and our tax professionals are there to help navigate those icy waters.
Over time, we all build up assets. These might be computers, office equipment, office space, and even code. These assets depreciate on known schedules that despite the word Before in the acronym, can impact EBITDA. We might defer tax deductions until we are profitable or we might pay the tax immediately and carry certain aspects over. This is an area where we should keep a spreadsheet of everything we own (as a check and balance against what’s in our accounting systems) so our tax professional can help us figure out what goes in which column, and how.
Research and development is one of the more difficult aspects of our taxes we have to navigate - especially in software. We all know that the second we commit code, that code becomes technical debt. We also know that many of the features we build and innovative ways we figure out to maintain legacy code could be research or could not. Most states allow us to account for research and development costs differently than maintenance of products. This is another place to work closely with a tax professional. Again, keeping a spreadsheet (or exporting from Jira) where all development time went (and the cost of that time) helps arm a tax professional with how to account for our R&D costs vs our maintenance costs.
Helping Our Customers With Their Taxes
Lastly, one thing I like to do is ask my tax preparer a few questions about how my products impact the tax burden of my customers. For example, for organizations working with small businesses, we might want to provide a simple export of our receipts annually or quarterly for customers to use in their tax filings. Or we might market differently at tax season, especially if we sell larger systems that might be considered capital expenditures. This helps provide special marketing content for customers around tax time. Those promotions can go a long way in propelling a company forward in what might otherwise be hard months for SaaS companies.
Additionally, we might find some little feature that we can build or promote that helps customers. For example, we might be able to export inventory, provide basic timekeeping to help categorize time spent on initiatives, etc. Every interaction with people more experienced than us with a domain of knowledge is an opportunity to learn how to make our business better - as well as how to help our customers find success!