You have a great business idea and you are eager to raise some cash to launch using Kickstarter or Indiegogo or gofundme. Lets say you are getting stretched thin because you have almost spent all of your runway money from your last job so you want to launch your $51k campaign ASAP in 2014. However, if you really needed to you could wait until 2015 by polishing your pitch while selling holiday wreaths for cash to get you though November and December.
Wait to receive your funds until 2015 for tax timing purposes.
Why wait? because you know that you are going to crush your real entrepreneurial debut in 2015 because you read this blog and have an extra year with $10k of your $51k to help you get off the ground.
Individuals and most businesses file tax returns on a calendar year basis. If you get control of your funds prior to the end of the calendar year you will pay sooner and pay more. If you wait you will have more time to spend the money to keep you in a lower income tax bracket AND by waiting you defer paying any tax for another 12 months.
Let us say you are a single individual and all of your time in 2014 has been spent coming up with business ideas so you have no other income. You plan a gofundme and you raise $51k that requires actual business expenses of $25k for the first year with no other income (yet). Here are two scenarios with very different outcomes.
Scenario 1: You cant wait and take the money December 20th, 2014 (year 1) so you only have time to spend $1k on business expenses in the week and a half before the end of the year.
On April 15th, your CPA tells you that you have $50k in net income on your 2014 tax return which sadly equates to you paying up on a $9.5k Federal Tax bill and an $2.3k Massachusetts tax bill for a total of $10.8k in tax due on April 15th, 2015. Sure, in 2015 you spend the $25k in expenses and create a big tax loss that you can carry back to get your cash back but your cash was in the federal and state coffers when you needed it most. One of a few problems is that you needed that cash to feel comfortable bringing on that smart employee whose idea would have saved your business with a big sale in 2016.
Scenario 2: Same profit scenario except you bite the bullet and wait until 2015 to take the money. You take the 51k on January 2, 2015 and spend said 25k in expenses during the year. Now you have zero tax due April 15th, 2015 and a total tax bill due in 2016 is only $2.4k for fed and less than $1k for Massachusetts. Total tax of $3.4k.
Your CPA says "Nice one!" and "your tax bill is less because of progressive tax brackets". The extra cash and the extra time with the cash in your pocket allows you to bring that smart employee on and keep business open for another 3 months. You survive 2016 and IPO in 2020 selling your shares and moving to Hawaii to surf for the next 10 years.
Here are some ideas to help you wait and maybe even make waiting fun and increasing donations:
A New Years Eve Party ending the funding at midnight.
Pictures of your prototype with a different cat for every day in December.
Create special gift incentives for every holiday to encourage donors to give while they are feeling generous anyways but not actually ending the funding until after 12/31/14.