President Obama renewed his call for expanding child, family and education tax credits in his fiscal Year (FY) 2015 budget proposals as well as for curbing some tax preferences for higher income individuals and businesses. Many of the proposals are familiar from past budgets, but for FY 2015 the White House is placing special emphasis on passing tax reform for families and lower income individuals.
To learn more, check out this SPECIAL REPORT.
By: Don Warrant, CPA Director
On February 5th, 2014, Governor Andrew M. Cuomo announced the largest business competition in the United States; “43North”. The competition—named after the latitudinal line that runs through Western New York—features $5 million in cash prizes, with a top prize of $1 million. The competition is part of Governor Cuomo’s Buffalo Billion initiative.
43North is designed to systematically generate new business ventures in Western New York while providing mentoring and other aid for aspiring entrepreneurs, supporting early-stage firm growth and attracting additional venture funding. The objective of this bold and proven approach is to position Upstate New York and the Greater Buffalo Niagara region squarely on the map of America’s newest innovation and entrepreneurship hotbeds.
In addition to the top cash prize of $1 million, 43North will award six $500,000 prizes and four $250,000 prizes. Winners also receive free incubator space for a year, guidance from mentors related to their field, and access to other exciting incentive programs, like Start-Up NY.
43North is open to applicants ages 18 and over from anywhere in the world in any industry, with the exception of retail and hospitality. Winners must agree to operate their business in Buffalo, New York for a minimum of one year.
The competition will be broken down into three rounds, with each round being judged independently of one another.
· Round 1 (February 5 – May 31, 2014): applications from prospective businesses will be accepted via the competition’s website, 43North.org. The purpose of Round 1 is for applicants to provide a vision for their venture, including their business concept, target customers, industry overview, competitive landscape, and revenue potential. This submission is not intended to be as comprehensive as a detailed business plan, but should provide the judges with a summary of the major elements of the venture.
· Round 2 (September 15 – September 20, 2014): the semifinalists will present further detail on their plan, along with a 10-minute online presentation to 43North’s judging panel, followed by 10 minutes of questions. The plans put forward in Round 2 will include the venture’s business concept, value proposition, competitive analysis, communication and distribution channels, client relationships, key stakeholders, resources and activities, cost structure, revenue streams, and financial considerations.
· Round 3 (October 27 – October 31, 2014): the final stage of the competition is for finalist teams to pitch their business in person to a panel of judges in Buffalo. Each team will have 10 minutes to sell their business idea, followed by 10 minutes of questions. Teams will be assessed on overall organization of the presentation; the team’s ability to “sell’ the idea and need for the company; the team’s ability to defend the plan and be responsive to questions; and the quality of the overall plan. The competition concludes with the selection of winners and celebrations.
Deadline for submissions is May 31st, 2014.
If you have questions regarding the 43 North Global Business Plan Competition please visit their website here: http://www.43north.org/43north-hits-the-road-to-promote-business-plan-competition
By Joe Burwick, CPA
Crowdfunding is not a new concept, as grassroots fundraising dates back to 1997. But with new platforms, like that of IndieGoGo and Kickstarter, crowdfunding has gained traction in raising revenues for donations, charities, and businesses.
What types are there?
Crowdfunding relies on the concept of asking large groups of organizations and individuals, to contribute to a project. There are three primary types of crowdfunding:
Donation or Reward. When people give money towards a project and receive a gift or promise of one of the finished products in return.
Debt. Receiving funding from people with the expectation they will be paid back with interest in the future.
Equity. This involves getting a large number of people to buy into an idea in return for equity in the project or business.
Depending on the structure of the transaction (Equity, Debt, or Donation/Reward) there are differing tax implications and reporting requirements. For instance, donations/rewards where the investor receives something in return is a taxable event and must be included in gross receipts. However, if deductible business expenses exceed your crowdfunding revenue and other operating revenue, then you won’t owe income tax (but may owe franchise or minimum taxes).
Depending on how the payments are received, the crowdfunding recipient may get Form 1099-K. If payments are made by credit card or if payment in settlement of third party network transactions (i.e. PayPal) where gross payments exceed $20,000 and there are more than 200 transactions, you may receive one of these forms. The IRS will look to match (and analyze) the income on your return to Form 1099-K you receive.
In response to the growing popularity of Crowdfunding, the JOBS act set the Crowdfunding exemption for equity interest offered to the public at a ceiling of $1,000,000 for the aggregate amount sold to all investors in a twelve month period. Prior to this act you had to either register with the SEC or meet another exception before offering securities to the public.
The act further limits the amount sold to any individual investor based upon their annual income or net worth as follows:
If annual income or net worth is less than $100,000; the aggregate amount sold to such investor cannot exceed $2,000 or 5 percent of net worth / annual income.
If annual income or net worth is greater than $100,000 the aggregate amount sold to such investor cannot exceed ten percent of the annual income or net worth of the investor (not to exceed a maximum aggregate amount of $100,000).
You should consult a tax advisor to determine if the amounts received can be excluded from income (i.e. under Internal Revenue Code Section 118 for a Corporation).
What are the Financial Reporting Requirements?
Not only are there potential tax implications to these equity investments, but you must meet various financial reporting requirements as well. Here is what you have to know to meet the financial condition requirements clause of the JOBS act:
Different offering amounts have different SEC financial reporting standards. Congress has set forth the standards as follows:
If the target offering is $100,000 or less, the most recently completed income tax return and financial statements certified by the principal executive officer of the issuer must be provided.
If the target offering is more than $100,000, but not more than $500,000, financial statements reviewed by a public accountant independent of the issuer must be provided.
If the target offering is $500,000 or more, audited financial statements reviewed by a public accountant independent of the issuer must be provided.
As new provisions of the JOBS Act are rolled out, it seems to have raised more questions than answers for entrepreneurs and online start ups. While the bill was designed to help companies tap investors for the early cash they need to get established and hire workers, easing federal requirements for completing private share offerings; a young company would then be bound by SEC rules protecting the rights of their new stockholders, as well as certain state laws.
Don’t expect state security regulators to ease up anytime soon. As crowdfunding gains traction (and the dollars associated with it grow), so too will the scrutinizing of start-ups that issue shares through crowdfunding. Due to the complexities of parts of the JOBS Act and SEC rules toward crowdfunding, entrepreneurs should talk to a tax consultant; to be aware of all the state and federal regulations and the impact it may have at tax time.
Freed Maxick CPAs
Freed Maxick tax auditors will keep you up to date on the most pressing tax issues. If you would like to know how crowdfunding may affect your business at tax time Contact us and connect with our experts.