Crowdfunding and Your Small Business TaxesLinda Jenkins, April 12 2015
Just raised a heap of money via crowdfunding for your startup? Congrats. Forgot to plan ahead for your small business taxes? Uh-Oh...
If you raked in more than $20,000 via crowdfunding campaigns in a single year, be aware that you may receive a 1099-K for the total amount. Yes, the IRS considers your good fortune to be income! If you find yourself in the unfortunate situation of having just closed out your business year, your options are limited, but a good small business CPA (certified public accountant) may be able to work some magic for you. Assuming you are not already using accrual-based accounting, making the switch now may allow you to apply related expenses from a subsequent tax year; or, if your company is not already organized as a C-corporation, making that change could allow you a few more options.
Ideally, the best way to deal with this is to plan ahead. If you have control over when your crowdfunding campaign ends, plan it for early in your business tax year. That way, you will be able to apply related expenses, and avoid having a year in which you record high income and low expenses.
Don't forget about state taxes. Have you recorded all of your contributors' zip codes and transaction amounts? If your crowdfunding platform does not already do this automatically, you will be responsible for gathering this information, and will likely have to report transactions from your home state as sales tax.
Be aware that collecting crowdfunding proceeds is new territory, so as of April 2015, a search on irs.gov will get you nowhere. If you are now in a panic over your small business taxes, calm down, and then contact the nice CPAs at jenkinsco.com for further assistance and tax savings .