5 ms·

This whole article reads kind of bullshit from US GAAP perspective. In case people who pledge will receive tangible goods in exchange, of course it is a sale.

This whole article reads kind of bullshit from US GAAP perspective. In case people who pledge will receive tangible goods in exchange, of course it is a sale. But these pledges will be accounted for as as prepayments in the start-up's books. The sale most probably will be recognized when the goods will be shipped|delivered and will be offset with cost of goods sold. R&D expenses are completely different matter, and will be expenses or expensed/capitalized based on applicable accounting/tax policies.

einhverfr 14y ago
Yeah. Additionally any article you'd get there will oversimplify to the point of mostly offering an admonishment to check with an accountant. As a business typically you are going to pay for net income. Calculating net income is going to be difficult in this case because it depends on what you are raising money to do. Raising $500k to pay some experts to go develop the world's best pizza recipe in a year? Do this the same year as the fundraising? If you can spend all of the money you raise on bona fide business expenses (but see amortization below!) then it isn't going to raise your tax liability at all. Similarly suppose it is for a pizza oven. Now we get into the complications. Do the tax laws (we are talking tax accounting not GAAP or financial accounting here) allow you to take the whole thing off the first year? or are you required to amortize the cost at a specific schedule? Irrespective of the ability to do so, would you prefer to amortize over a specific schedule with the idea that you save up for a replacement? Now you get all the questions that matter and the answer as to whether it raises your taxes or not are not at all straightforward. The real lesson should be "talk with your accountant but also learn the basics yourself."
- daemon13 14y ago
  Well, as with technical/coding matters, there are 3 tactics to reduce probability of getting into trouble: 1. Learn basics of accounting (or coding for that matter), it is not that difficult. 2. Have a good expert in your team and rely on his/her judgement. 3. Listen to 3 experts talk and form your own opinion. Going back to the crowdfunding example, the actual decisions and actions will depend on the start-up's specific situation. When we speak about R&D, for example development of new software or hardware, in most of the cases it is possible to capitalize R&D expenses and defer those expenses hitting P&L. BUT this will actually increase corporate profit tax in the current and following 1-2 years. And this will increase cash outlay now because due taxes are indeed need to be paid. On the other hand if the start-up [meaning legal entity] is not profitable, it is possible to defer profit tax using carry forward provisions [which have specific limitations re amounts/timeframe/eligibility]. So, yes, learn basics, but speak with expert... :-)
- rprasad 14y ago
  You're confusing the issue. Capital is never taxed as income under the U.S. income tax code. Ergo, the money raised in your example would never subject the business to income taxes. Prepayments of revenue, i.e., for goods or services that will be provided in the future, are income and are taxed as income. Ergo, if you collect prepayments of $500,000 from pizza-lovers to sell them the pizza that you will develop using their money, the net would be taxed.
  - einhverfr 14y ago
    Capital (equity) and net income (income - expense) are separate. It is possible, as you point out, for for taxes to be affected and this is what I am getting at. Something can affect equity and assets without affecting net income but net income always affects equity and assets. As for prepayments, assuming you aren't one of the rare cash-basis filers, it will be deemed income at the time goods are delivered (and is technically a loan before that point since you have a debt (the goods to deliver) to the customer and if you have to refund the money you may yet have to do so.

einhverfr 14y ago

Yeah. Additionally any article you'd get there will oversimplify to the point of mostly offering an admonishment to check with an accountant. As a business typically you are going to pay for net income. Calculating net income is going to be difficult in this case because it depends on what you are raising money to do. Raising $500k to pay some experts to go develop the world's best pizza recipe in a year? Do this the same year as the fundraising? If you can spend all of the money you raise on bona fide business expenses (but see amortization below!) then it isn't going to raise your tax liability at all. Similarly suppose it is for a pizza oven. Now we get into the complications. Do the tax laws (we are talking tax accounting not GAAP or financial accounting here) allow you to take the whole thing off the first year? or are you required to amortize the cost at a specific schedule? Irrespective of the ability to do so, would you prefer to amortize over a specific schedule with the idea that you save up for a replacement? Now you get all the questions that matter and the answer as to whether it raises your taxes or not are not at all straightforward. The real lesson should be "talk with your accountant but also learn the basics yourself."

daemon13 14y ago
Well, as with technical/coding matters, there are 3 tactics to reduce probability of getting into trouble: 1. Learn basics of accounting (or coding for that matter), it is not that difficult. 2. Have a good expert in your team and rely on his/her judgement. 3. Listen to 3 experts talk and form your own opinion. Going back to the crowdfunding example, the actual decisions and actions will depend on the start-up's specific situation. When we speak about R&D, for example development of new software or hardware, in most of the cases it is possible to capitalize R&D expenses and defer those expenses hitting P&L. BUT this will actually increase corporate profit tax in the current and following 1-2 years. And this will increase cash outlay now because due taxes are indeed need to be paid. On the other hand if the start-up [meaning legal entity] is not profitable, it is possible to defer profit tax using carry forward provisions [which have specific limitations re amounts/timeframe/eligibility]. So, yes, learn basics, but speak with expert... :-)
rprasad 14y ago
You're confusing the issue. Capital is never taxed as income under the U.S. income tax code. Ergo, the money raised in your example would never subject the business to income taxes. Prepayments of revenue, i.e., for goods or services that will be provided in the future, are income and are taxed as income. Ergo, if you collect prepayments of $500,000 from pizza-lovers to sell them the pizza that you will develop using their money, the net would be taxed.
- einhverfr 14y ago
  Capital (equity) and net income (income - expense) are separate. It is possible, as you point out, for for taxes to be affected and this is what I am getting at. Something can affect equity and assets without affecting net income but net income always affects equity and assets. As for prepayments, assuming you aren't one of the rare cash-basis filers, it will be deemed income at the time goods are delivered (and is technically a loan before that point since you have a debt (the goods to deliver) to the customer and if you have to refund the money you may yet have to do so.