Tax Planning for Longevity Businesses: A CPA’s Checklist for Owners
Longevity businesses are a diverse and growing niche that straddles multiple industries, including healthcare, technology, and research. It includes biotech startups, supplement brands, wellness clinics, medspas, digital health platforms, and personalized healthcare, and as such, each requires a tailored approach to accounting and taxation.
The experts at Growise understand these challenges and have developed a CPA-style checklist to support compliance, minimize the tax burden, and support your continued upward trajectory.
Longevity Business Tax Checklist
Read on for our top tips on tax planning, tailored especially for longevity businesses from startup to scale.
Choose the right business structure.
Though many longevity-focused businesses start as LLCs, they often get to a point where they need to seek investment to support growth and innovation. Transitioning to a C-corporation can enable more options as VCs prioritize this structure for transparency.
However, if you suspect your company will eventually go in that direction, it might be better to start as a C-corp. Despite the complexities of managing a corporation, it will help you avoid complex structural changes later on and ensure you can move forward on opportunities that come your way.
Determine the best structure for your growth plans (a CPA can help!)
Consider your long-term investment needs.
Think about your research activities and whether they are focused domestically or will extend beyond borders. There are tax implications to consider here, and your business structure will have a significant impact.
Keep clinical, product, and R&D revenue streams separate
Multiple revenue streams create tax and accounting complications. Each category may have its own implications and can also be subject to unique rules.
To simplify accounting, we suggest keeping each revenue category separate. You’ll need to track COGs for each physical product and distinguish between taxable services and those that are tax-exempt. This may vary by jurisdiction, so it’s critical to work with an accountant who understands how geography influences the bottom line.
Clear revenue segmentation keeps your financials clean and ensures they are defensible in an audit.
Track R&D expenses meticulously
If R&D is part of your business, it is likely the most significant expense category. It can also unlock massive tax credits. Tracking these expenses is the key to maximizing these credits and ensuring continued innovation and growth.
Here’s what you need to do:
Identify qualifying expenses. These include clinical trial expenses, lab testing, product formulation, and product improvements.
Track expenses related to the above activities, including wages, contractor payments, materials, etc.
Document all project activities, including rationale, expectations, and results.
Don’t leave money on the table! Use our R&D calculator to see what you might be eligible for.
Educate yourself about inventory and cost accounting
If you sell products, inventory is one of the most important assets your business has, and your inventory method can have a massive impact on your financials.
Choose an inventory method that makes sense to you:
FIFO, or first-in, first-out, recognizes that the oldest inventory is sold first. The advantage of this method is that it typically results in higher net income and higher inventory valuation.
LIFO (last-in, first-out) assumes a higher valuation of newer products assigned to COGs, resulting in lower taxable income.
Weighted average divides the cost of available goods by the number of units available for sale.
If you are unsure what method is most appropriate, your Growise CPA can point you in the right direction.
Monitor shrinkage, spoilage, and obsolescence, and ensure you are properly capitalizing production costs.
Why is this important? Simply put, improper inventory accounting can skew your accounting and could potentially trigger tax issues as you scale.
Manage sales tax appropriately
Whether you’re selling physical or digital products, your business may be subject to indirect taxation.
For example, physical or economic presence in other states can trigger tax nexus. You’ll need to understand where nexus exists, apply for sales tax permits in relevant jurisdictions, and ensure you’re applying sales tax appropriately. International sales may also trigger GST or VAT taxes.
These issues may inordinately impact e-commerce brands and telehealth platforms, so it’s critical to know in advance so you can be prepared.
Classify your workers properly
You likely support a mix of employees, clinicians, researchers, and contractors. Each classification requires a unique tax form to ensure compliance, so it’s critical to ensure you issue the correct forms based on a worker’s location and employment status. Misclassification can lead to penalties and legal issues.
You must also consider payroll taxes, benefits, and their impact on your bottom line. Understanding these issues can inform future staffing decisions.
Capitalize or expense?
Some expenses will need to be capitalized rather than deducted. Understandably, this can impact finances, but you can plan for it if you know how to classify. Some IRS capitalization rules have recently changed, so speaking with your CPA is never a bad idea. When you understand the rules, you will be able to use strategic timing and plan your cash flow better.
Account for intellectual property (IP)
IP is one of your most valuable assets, and it’s also a significant cost involving patents, trademarks, and development of proprietary formulas, which can be amortized over the IP’s useful life.
Licensing agreements and IP transfers also have unique tax implications, and if you operate a cross-border business, structuring becomes even more complex from a tax perspective.
Plan ahead for funding rounds and investor reporting
Venture capital, government grants, and private equity funding are commonplace in the longevity niche. Tracking equity assurance and cap table charges accurately is essential, and you must also account for convertible notes and preferred shares.
Keeping your financials clean and up to date is essential to attract new investors and meet existing stakeholders’ expectations.
If you rely on grant funding, you may need to consider additional tax treatment and reporting requirements, some of which might be healthcare-specific.
Be audit-ready
Any longevity business making health claims should be prepared to face scrutiny. Being prepared for this is truly your best defense. Maintaining clean books and supporting documentation is foundational, but we also suggest keeping clear audit trails for R&D, inventory, and all revenue activity.
Being audit-ready builds credibility and will undoubtedly reduce stress at tax time. Working with a qualified CPA gives you a strategic advantage and helps you maintain a proactive stance.
The Bottom Line: Longevity Taxation is Far from Straightforward
Your company is innovating the future, and financial diligence will ensure you are on track to reach your goals.
Speak to us today about how Growise CPAs help you reduce risk, optimize tax outcomes, and get back to focusing on what matters.