If you’re planning to launch a new business or incorporate your home-based enterprise into a full-blown startup, you may still be learning the numerous legal complexities that govern commercial activities in the United States.
The process of setting up a new venture can sometimes get the better of even a seasoned entrepreneur, and compliance-related mistakes can happen.
Here are five tips that will help you avoid getting entrapped in complex legal issues so that you can focus on growing your new business.
5 Essential Legal Tips For Startups
1. Choose the right business structure
The right type of business entity will go a long way in determining the success of your venture.
For example, an LLC might seem like the right choice at this point (because it’s easier to set up and protects its members with limited liability), but if you plan to seek funding you may want to set up a C Corp.
This is because a majority of startup investors and venture capitalists feel safer investing in a corporation as it offers greater investment protection.
It’s important to pick the right business structure at the outset as changing your business model later is an expensive, time-taking and complex process.
The best way to go about this critical decision is to create a roadmap for your business, learn the pros and cons of each model and pick the one that is best in line with your long-term goals.
2. Include home-office expenses when filing a return
Many startups, solo entrepreneurs and freelancers operate from home, which helps save operational costs.
If you work from home, don’t forget to include your home-office administrative costs when calculating your total taxable income for the year.
At the same time, learn IRS rules about home-office deductions before including them in your tax return.
To get a deduction for your home-based workplace, the foremost requirement is that it should be a space that is separate from your home and should be exclusively and regularly used for business activities.
If a portion of your home qualifies as office space, you can make significant savings by deducting corresponding expenses such as utility bills, repairs, insurance, maintenance, and property tax.
3. Entrust taxation-related matters to a trusted professional
If you’re facing legal issues with regard to tax returns, if you’re facing penalties for an overdue return, or if you have past dues that you’re unable to clear in one go, consult an experienced taxation attorney to resolve the matter before it puts you in further trouble with the IRS.
Take the time to find competent lawyers who know how to deal with the IRS and can help you get tax relief or a tax installment agreement to mitigate your tax burden.
If you’re facing a tax audit or received a notice for tax evasion, it would be wise to have sound legal counsel by your side to protect your personal and business interests.
4. Ensure your business is GDPR compliant (if you market to EU citizens)
GDPR, or General Data Protection Regulation, is a legal framework that governs data collection and data usage by companies based in the European Union.
In addition, any business located outside the EU that markets goods or services to residents of EU member states must comply with the regulation.
If your startup deals with any type of consumer or personal data (collecting, processing, transfer and/or storing information), your data-related processes should be GDPR compliant to avoid legal problems.
Breach of data privacy can land your growing business into complex legal issues that you don’t want to encounter, especially when your business is new and is yet to establish itself as a reputable, money-making venture.
5. Don’t allow payroll tax issues to get out of hand
If you’re facing problems with payroll taxes, you may be inadvertently inviting huge penalties from the IRS.
Not paying payroll taxes or not filing payroll tax returns is a violation that can get you in trouble with the IRS as well as the law.
If a business fails to pay payroll taxes on time, the IRS will pursue the collection through specially designated revenue officers who have special authorization to chase your key executives for unpaid dues. You don’t want the IRS using collection measures to get you to pay your taxes.
So if you have any pending payroll tax payments of returns or are still ironing out payroll-related issues, get current with the IRS to avoid forceful recovery measures.