With recent technological gains and the evolution of the web, the use of various IT systems, including cloud-computing solutions, has become the norm. While modern and highly crucial for a business’s performance, cloud computing taxation is perplexing indeed. With even more complicated laws and regulations, it can be challenging to firmly grip the concept of sales and tax by studying various cases in the pursuit of learning more. There are considerations to keep in regards to pondering over taxes and if SaaS is exempted. The considerations vary from state to state.
SaaS (Software as a Service) companies do not benefit from real-time reporting with third-party integration by enterprising tech start-ups. Due to existing technological research weakness, some may even emphasis that it’s like using a cannon to squat a fly. The costs can certainly act as a repellent and shun away any interest that brings business to the conclusion that the software wouldn’t be able to handle the complexity of requirements that it needs to accommodate. That being said, audits for taxes should be set up well ahead of time and “hope” is not a plan to depend on. An accounting solution for all SaaS start-ups is critical before the state issues orders to the IRS for investigations.
Under law, SaaS is deemed similar to perpetual software licenses where the software is used indefinitely, sometimes by paying a one time fee. Such software needs to declared and clarified as to how it would be used and for what purpose. Just like perpetual licenses, SaaS laws vary and differ from state to state and are never the same. Accounting solutions for all SaaS start-ups need to conform to laws. Audits are prone to harsh and strict regulations, so any irregularities may be dealt with severely. Therefore, it’s a good idea to think of such things before they happen.
Nothing beats a professional service/tool and using one helps audit and taxing matters greatly. Hiring one to check and recheck straighten things up without any chances of error. However, there’s more to be done than that. Even without expertise or great knowledge of accounting, here are 4 accounting musts for your SaaS start-ups to accomplish before state auditors come a-knocking.
1. Account and Tax Planning While Growing
There is no greater mistake in business than not planning for growth. Before being proactive in a business, it’s necessary to punch in all factors in order to attain a picture of ground realities and, thus, form a solution towards it. When discovering new markets for potential growth opportunities, many or most of the applied accounting solutions have to be consistently tallied with the law so that SaaS start-ups comply with the vital laws of states or wherever it is expanding to. Use a professional at every corner and step of your expansion plan so that they can eradicate any problems that could arise. This helps to avoid future erratic and hectic problems.
2. View the Bigger Picture
The strategy of up-front revenue recognition is fairly risky. If a client or customer withdraws their finances from a contract and requests a refund or return, it can get pretty messy if the cash is already earmarked for something like accounting expenditures. What that does is significantly disturbs strategies and plans. However, prepared SaaS start-ups have ways to handle such scenarios.
3. VAS For SaaS Users
If you are selling services that supplement all core products, otherwise known as VAS (Value-added Service), you must handle things with the utmost care. If you are charging outside of the area of your core products, it can get tricky very fast. It is highly recommended that all services and fees are clear and precise. Otherwise, it may take days just to clear up confusion caused by misinformation. Generally, the rule is to designate and distribute revenue and income between components for accounting based on their selling price on an individual basis. SaaS start-ups need to recognize this in order to benefit.
4. Track Change to Grow Smart
From laws and regulations to procedures, change is a part of the process to improve and develop. Change may arise from any direction and being prepared is the smart thing to do. Keep track of changes in order to better handle any indications of arising or upcoming turbulence in an audit. Each year, rules and laws are updated, or even modified, so knowing these enables one to be in a better position to respond accordingly. Also, in SaaS start-ups, always plan ahead and notice any changes or news; for example, changes in tax codes.
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