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Taxing Crowdfunding – More Hassles for Entrepreneurs
Non-equity crowdfunding has filled an important void for entrepreneurs, initially providing scarce seed capital, and more recently evolving into a valuable market validation tool for start-ups. But somewhere along that spectrum, the taxman became interested in whether the proceeds are really taxable income. (As outlined in this interesting article) in lots of interesting theoretical issues to argue here, but fortunately most start-ups will spend more than just the cash raised, and can adopt favorable accounting methods, limiting the likelihood that tax will actually be due if the proceeds are treated as taxable. Sales taxes also are not usually a problem for the vendor except for sales to donors in its home state, which probably limits the risk and often may not exceed filing thresholds.
There is a similar unresolved problem regarding state tax credits/incentives provided to many young companies which exceed any current tax liability. The IRS has ruled that a wide variety of NY State start-up incentives are taxable.
These are more indicators that start-ups need to seek enough experienced professional guidance to avoid the pitfalls that inevitably arise during their earliest growth stage.
If you have questions about this article or accounting and finance matters impacting your venture, connect with our team: The Fahrenheit Group
Brian Monbouquette works with middle market and emerging growth companies as an interim or fractional CFO, and as a financial consultant applying his extensive experience in tax, capital raising, M&A and partnering. Brian has 30+ years of experience as a former Big 4 and regional firm tax partner, and as a CFO for a variety of high growth companies, predominantly with firms in healthcare/life sciences, software/Internet services, clean energy manufacturing and other services. d: 804-955-4424 / c: 804-836-7593 / e-mail: email@example.com