Tech start-ups are all over the place, and with so much demand for their services, is it any wonder? But for tech start-ups offering some kind of eCommerce platform involving online purchases or transactions, as so many do, it’s important to recognize that these can be notoriously complex when it comes to tax liabilities.
With this in mind, many tech start-ups who have begun to realise the difficulties imposed by operating completely online, hire accountants to help them meet all of their tax filing requirements and answer any questions they might have about the entire process.
Take a look at some of the most commonly asked questions from tech start-ups below, and think carefully about the answers and whether you would be able to meet all of your tax requirements without the help of an accountant:
Q: What are the implications for sales tax compliance with eCommerce?
A: Ultimately, if you ship items anywhere across the country, you may be responsible for collecting sales tax depending on the items end destination. Note that the ship-to address is the point of sale, and if you make a sale in a different state, you are then responsible for paying the relevant sales tax.
Q: How is remote work affected by tax compliance?
A: With many more people than ever before working from home, here are some of the tax implications associated with it:
- Any company can set up their headquarters in a state where they have at least one employee
- For businesses providing eCommerce infrastructure, then the IRS require that the company facilitating online transactions, will be required to collect taxes.
- If remote workers live outside the state of their company’s jurisdiction, they may have a tax liability to the state in which they live. In some instances, more than one tax return may need to be filed.
Q: Are there any complications related to interstate tax?
A: A businesses must collect sales taxes in states where they have economic nexus, which refers to where a business is headquartered or the level of connection between a business and when tax obligations kick in. eCommerce retailers are now subject to sales tax, which many argue has the ability to impact small businesses disproportionately, since the legal responsibility of state taxes is placed upon the vendor.
With so many tax compliance prerequisites, differing state rules and frequent rate changes, small businesses such as tech start-ups, have a lot to deal with when it comes to taxes, even though some states are beginning to change their rules to try and accommodate start-ups and remote businesses.
How can tech start-ups better deal with tax compliance?
Tax compliance is a headache all small business owners have to face, without fail, every year, but to help you get a grip of them as a tech start-up, you should seriously consider hiring professional help in the form of an accountant, or better yet, outsource your accounting requirements.
The advice and guidance an accountant can provide you with is hard to replicate, and with their tax planning strategies, they won’t just help you remain compliant, but will help you make the most of your earnings, too.
While understanding the basics of tax deductions can help you feel less overwhelmed when tax season rears its ugly head, this is no substitute for the expertise and professional guidance of a qualified accountant.