When starting a business, entrepreneurs always focus on building great products, nurturing their network and closing deals. However, there are also a lot of operational decisions to be made. One of these decisions is about business structure - you need to decide what form of business entity to establish. Both legal and tax considerations arise as you select a business structure. Thus, the form of business not only determines the form of your personal liability, but also will make an impact on the type, amount and date of taxation. Even if you want to go international, it never hurts to involve an experienced tax adviser. To choose the appropriate form of domestic and foreign, parent and affiliated companies structure can help to optimize the tax burden and to save your precious cash flow.
Get used to tax relevant topics
Often International Chamber of Commerce or the national tax authorities such as the Internal Revenue Services (IRS) for the US also provide support, especially to new business owner. To name just a few of the topics:
- Filing and Paying Taxes
- Employer Identification Number (EIN)
- Recordkeeping
- Deducting Expenses
- Forms and Publications
Reading such online publications is a good start on forming an opinion on tax-relevant topics that come up when starting a business.
Discipline from day one
Once you opted for a certain form of business, the challenge now is to stay on top of all important tax payment deadlines and to comply to the numerous tax rules. Not only in Germany there are a lot of complex tax rules such as the value added tax.
Be prepared to make advance payments on taxes each quarter. This is very important, as young companies may not be profitable within the first years but still need to pay income taxes, for many different reasons. One reason, for example, can be if you set up provisions that are allowed within the trade balance but have to be released for tax return purposes.
Also focus on managing your cash flow to build up reserves for unexpected tax payments. Even if you do the bookkeeping by yourself to keep expenses low, there is always the risk of accounting errors. As tax audits often cover several years, such audits can lead to serious tax back payments, including penalties and interest if you have not complied to the tax regulations from the very beginning. Thus the sooner new business owners deal with tax topics and take professional advice, the sooner they can use potential benefits and avoid mistakes.
