The short answer is yes. There are multiple reasons why it is important that your startup has an address, including basic administrative needs such as:
- Receiving mail.
- Filling out your annual tax return.
- Filling out any state filings.
- Using a payroll provider.
Even more importantly, you need an address in every state your startup operates in. You can’t just not have an address in a particular state. The state wants an address so they can send documentation to your startup including unemployment rate increases, penalty letters, and other official information.
What Happens if your Startup Doesn’t Have an Address?
There are plenty of things that could go wrong without an official address, but here are two crucial examples.
Trying to avoid state taxes
Here at Kruze Consulting, one trap we’ve seen startups fall into is when they think they are outsmarting the government by not getting an address in one of the states where they operate. They will claim that they’re not operating in California or New York because they don’t want to pay the franchise taxes. Then, when the time to fill out the tax return comes around, they give us their home address, or something like that, since their tax return has to have an address on it., and not all startups have office locations or pay rent these days.
When that home address is used by the IRS, the IRS will see they are in California or New York, one of the high tax states, and communicate to the state of California or New York that there is a business operating in their state and that they didn’t file a state tax return. The IRS will make the state aware that they might want to do something about that as they have a little bit of lost revenue.
About a year later, California or New York will begin auto-debiting your bank account, which is very hard to stop. They also debit far more than they would if you had just paid it to begin with ($800 for California and circa $350 for New York).
Although you may see this trick as an effective way to outsmart the IRS and state governments, by not giving an official business address you will most likely end up losing more money when that tax return is filed and it triggers an alert to these governing bodies.
Missing crucial correspondence
Problems can also occur if you don’t respond to penalty letters or requests for more information, as this can compound the penalties. The IRS doesn’t stop assessing penalties just because you didn’t get your mail. Or you could miss the mailed reminder to fill out your California Statement of Income, which your only reminder for will be a small, white postcard!
So be responsible. It just makes sense to have an address.
Advantages of Your Startup Having an Address
A positive that comes from having an address is that you can get your R&D tax credit rebate checks mailed to you. You can also get your employee retention tax credit checks mailed to your address. These are real sums of money which the government is giving back to you! You want to be able to deposit those checks and get them in your bank account as soon as possible.
Options for Remote Addresses
There are plenty of good reasons for your business to have an address (one in each state you operate in). So please make it easy for yourself, avoid big penalties and charges and just do it.
We recommend Earth Class Mail for a really good service if you need a virtual mailbox. Please ensure you check it though because your tax and accounting CPA is definitely going to need the mail that gets sent to that address.
If you have questions on mailing addresses, startup accounting, startup bookkeeping, taxes or venture capital please contact us.