Here’s Why Startups Should Keep Up With Tax Law Changes

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The art of running a successful startup business is not as linear as stated in the fundamental courses of finance. There are a lot of intricacies involved, such as legal and tax matters, that need to be complied in order to lead a successful startup. The causal link is that startups need to focus more on non-generating aspects, such as tax compliance. A stat report on startup business points out areas that led to failure: 46% of failures are caused by incompetence in the taxation domain… Food for thought. Tracing tax exposure and keeping up Tax changes can interfere with business success in various methods. A simple way to explain this is when a business is selling the product(s) in different forms. For instance, a startup sells software that can either be downloaded or bought on a disc. The delivery variability means that the tax rate can vary. This is where state based regulations play a major role. If the software is downloaded in Texas, the tax rate is going to be different. Likewise, if the product is bought as a disc, it falls under the ‘tangible good’ category, the tax rate being different. Since the state laws on taxing digital good vary on a routine basis, tracking them requires a non-conventional approach. State laws also have a far reaching impact on startups. Contrary to the ‘academic’ belief, the physical presence of a startup is not the only way to create tax exposure. A good example is the ‘nexus’ effect, which is created when enterprises do businesses in different states. For instance, a person runs a startup enterprise in California and does a sales deal in Miami. This action requires the business owner to register and file Florida state sales taxes. The dynamism of tax structures demands a focus on financial factors that affect business environment.  Startup entrepreneurs can boost financial literacy through financial seminars and insights on the future of wealth management. Also, they can take advantage of webcasts, tax news applications and online newspapers to keep up with the latest in tax laws. It is also important to mention that the best way to manage taxes is by complying with them, rather than looking for ‘safety nets’. For instance, state laws also require startups to show their foreign capital. This very reason led to a startup, Beanie Babies is to be levied a penalty of $53.6 million for tax evasion. The plain cause behind the issue was undeclared Swiss accounts, deemed as a safety net. However, state laws within Illinois allowed the U.S. attorney to pursue a case. Financial complexities are a common occurrence within the marketplace and are being further compounded due to the presence of newer kinds of financial products. As the state and the Fed tries to keep up pace with the development, they would keep evolving the tax ecosphere. It is therefore necessary for a startup to have a sound tax structure in place that takes all the changes into consideration. Not only will it ensure compliance to government laws, it will play a vital role in the long-term success of the business.


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