An issue most crowdfunded start-up companies encounter is neglecting to receive advice on accounting for crowdfunding transactions and the tax implications thereof. Without accounting & financial management technology and an experienced CPA providing financial advisory services, crowdfunded businesses may unknowingly be subject to tax consequences. Regardless of the crowdfunding type, whether reward-based or equitable-based, accounting and tax planning are beneficial for setting up your company as a crowdfunded entity.
Accounting software, such as QuickBooks or NetSuite, along with outsourcing accounting and tax controller services, will guide your business into a healthy financial position. The benefits of setting up accounting for crowdfunding, include the following:
- Accurate recording of expenses, taxable income, tax liabilities, and crowdfunding transactions.
- Set up the proper general ledger and bank accounts.
- Integration of reliable accounting software into your financial management system.
A tax question for you is how is crowdfunding taxed on proceeds your crowdfunded business receives from crowd-funders. To provide you with a better understanding of accounting & tax planning basics, provided below are valuable, helpful tips you should consider in launching a crowdfunding campaign.
The Proper Set-up:
Proper set-up of a crowdfunded business requires a professional financial adviser or certified public accountant with experience in accounting standards and federal tax laws. What you may not know is that the recipient of crowdfunding proceeds may be subject to tax consequences, requiring expertise from crowdfunding accounting professionals. Another question some entrepreneurs may have is, is crowdfunding tax-deductible for the crowdfunded businesses or only for crowd-funders? A seasoned accountant, that keeps tabs on tax laws and accounting best practices in this field, will be best positioned to advise and consult with your business in this regard.
Establishing a partnering relationship with a reputable financial & tax expert is advantageous for crowdfunded enterprises to be up-to-date on new tax laws. Creating a financial management system with integrated accounting software in the incubation stage can help build financial stability based on your business planning goals. Appointing a licensed financial advisor to answer all your questions about accounting for crowdfunding and tax liabilities is a solution you should consider.
Special Tips for Crowdfunded Investments
If you are an investor, you may be able to write off donations made to crowdfunding agencies that are certified 501 (3) (C) organizations. However, if you donate money to crowdfunding exploit that is for a private individual, you may not be able to claim the deduction. Working with a tax advisor can help sort out any tax-deductible issues.
Basic Taxation Considerations for Crowdfunding Companies
Crowdfunding tax planning is perhaps one of the most important issues. Don’t forget to sit down and review all of the details of your campaign as funds come in. You should have a complete financial road map, including the following:
- Funding to start your venture
- Funding to set up payroll
- Current expenses
- Expenses that are projected
If you’re seeking reward-based crowdfunding for your marketing campaign, the proceeds will become taxable business income based on IRS rules. But, while the proceeds are classified as taxable income, half of the total amount is nontaxable, with only the other half being taxable. This is an example of how complicated the rules may become, and how outsourcing accounting and tax-related services could help protect your business from unnecessary penalties and fines.
Only a CPA with experience in tax accounting can set your financial management system up that reflects tax rules and general accounting standards.
Is Crowdfunding Tax Deductible?
Tax planning is vital for a crowdfunded business and investors involving equity-based crowdfunding and IRS and SEC (Securities Exchange Commission) rules and regulations. Your business plan should include a budget detailing your funding assumptions for launching your venture and setting up payroll and expenses, present and future. Implementing a thorough tax planning strategy and accounting software is the first step to creating a financial management system.
How to Manage Crowdfunding with Proper Accounting
We generally encourage our clients not to wait until launch to get advice, implement a tax planning strategy, or chose accounting software. Waiting may lead to costly services that require accountants to dig through months or even years of transactions and data to organize your books and help you file taxes. If you are launching a crowdfunding campaign, you should first set up a foolproof plan from start to finish. This means your initial funding, setting up an account, keeping track of all investments made into your company/ or investments made into other crowdfunding companies, and many more functions. We at Fusion CPA have years of experience working with those who desire crowdfunding to start their business or are seeking to make crowdfunded investments. We are knowledgeable of all the IRS tax rules and regulations related to crowdfunding. There is still a substantial amount of grey area around crowdfunding taxation, so we are here to help answer your questions.
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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.