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Ask us anything: Taxes with Withum

  • 1.  Ask us anything: Taxes with Withum

    Posted 01-29-2025 10:16

    Hi Carta Community! Excited to kick off the Ask Me Anything event February 5th!

     

    During this event, we have two tax specialists from Withum, Sam Greenbaum and Nicole Angiuoli. Our specialized group of individuals services hundreds of some of the most well-known tech and emerging growth companies and our knowledge of the industry allows us to expertly guide them through their unique financial challenges. Not only do we provide tax and audit services, our advisory and consulting experience provides a wide spectrum of opportunities for us to work together.

    Sam Greenbaum, CPA is a tax partner at Withum in the firm's Technology and Emerging Growth Services Group. Sam is also the co-leader of our e-commerce sector & fem-tech sector and an active member of our Women in Tech Group. As a tax partner, Sam is dedicated to servicing her clients and building lasting relationships. She also focuses on tax planning and consulting, management and review of corporate tax returns and tax provisions under ASC 740, and have experience with QSBS, secondary transactions, tax credits and incentives (i.e., R&D, excelsior, QETC), state and local income tax, sales tax, and international tax.

    Nicole Angiuoli, CPA is a tax supervisor at Withum in the firm's Founders & Tech Executives Group within the firm's Technology and Emerging Growth Services Group. Founders and executives face unique situations and tax issues that are distinct from their businesses. Withum's Founders Group can offer an unmatched network of resources designed to ensure you have the skilled assistance necessary to mitigate taxes, maximize wealth and achieve your goals.  We specialize in planning for equity compensation and QSBS, among many other areas.  

    The discussions and materials presented for this presentation have been prepared by Withum for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors for your particular situation.

     



    ------------------------------
    Nicole Angiuoli, CPA
    Tax Supervisor
    Founders and Tech Executive Group
    Withum
    ------------------------------


  • 2.  RE: Ask us anything: Taxes with Withum

    Posted 01-29-2025 11:23

    Thanks, Nicole! Looking forward to you and @Samantha Greenbaum's session next week! Such a timely event for tax season, so thank you for sharing your valuable time with Carta Community. A quick word from Carta Legal: 

    DISCLOSURE: This event is presented on behalf of eShares, Inc., dba Carta, Inc. ("Carta"). The content of this event is not, and no opinions or comments shared in this event should be treated or construed as, accounting, business, financial, investment, legal, tax, or other professional advice or services​​. This event is for information purposes only. The content of this event is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein and undertakes no obligation to update content. The opinions of the guests and host are their own and do not reflect the view of Carta or Carta's affiliates. All product names, logos, and brands are property of their respective owners in the U.S. and other countries, and are used for identification purposes only. Use of these names, logos, and brands does not imply affiliation or endorsement.



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    Brent Devey
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  • 3.  RE: Ask us anything: Taxes with Withum

    This message was posted by a user wishing to remain anonymous
    Posted 02-05-2025 11:27
    This message was posted by a user wishing to remain anonymous

    Hello - 

    Thank you in advance for holding this.

    I have 2 part question for you.

    1.) The first several 409A valuations were performed by our CFO, but we didn't take them through a formal board approval. Does that mean that they were not valid?

    2.) We had ISOs that were exercised by two of our employees when we didn't have a current 409A in place. We issued 3921s using the prior valuation. Is there anything we should do to rectify this? The prior valuation was $101.15/share and the next 409A valuation issued after the exercise was $149.37/share.

    Thank you




  • 4.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 12:30
    1. It doesn't necessarily mean they aren't valid but its possible the IRS could contest that it was correct.
    2. I would recommend that you amend the 3921s to show the value at the time of exercise. 


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    Samantha Greenbaum
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  • 5.  RE: Ask us anything: Taxes with Withum

    This message was posted by a user wishing to remain anonymous
    Posted 01-30-2025 08:44
    This message was posted by a user wishing to remain anonymous

    Our startup just raised a SAFE round-how should we account for it in our financial statements, and what tax considerations should we keep in mind?




  • 6.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:06

    We typically see this booked as debt on financial statements. The tax considerations to keep in mind is whether or not the agreement classifies as debt or equity for tax purposes. This could impact its holding period. 



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    Samantha Greenbaum
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  • 7.  RE: Ask us anything: Taxes with Withum

    Posted 02-03-2025 12:00

    Hi there! I'm planning on exercising some ISO options later this year from my company. What records or documentation should I keep to simplify my tax filing process? Any specific forms or details I should be aware of? Anything else I should think about before exercising? 



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    Julia Larsen
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  • 8.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:07

    Hi Julia!

    Generally, we recommend saving the exercise documentation/receipts for the exercise. The company should issue you a Form 3921 that you will use to calculate an alternative minimum tax (AMT) adjustment on your personal return. ISOs have a preferential tax treatment if you hold (do not sell) for greater than two years after grant and one year after exercise. If you meet these holding periods, you will only report a positive AMT adjustment in the year of exercise, which may or may not trigger AMT taxes depending on your other income.



    ------------------------------
    Nicole Angiuoli
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  • 9.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:37

    Very helpful. Thank you, Nicole.



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    Julia Larsen
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  • 10.  RE: Ask us anything: Taxes with Withum

    Posted 02-03-2025 12:35

    Hello,

    Thanks for putting this session together. I wanted to confirm what I believe to be my understanding on something. It turns out that a stakeholder/board member of a Carta company I'm working with received options several years ago way below FMV (ie. $0.01/share grant price vs FMV of $1.50/share as per private placement). The board member would also be considered an employee as per an employment agreement although I don't see that payroll was actually issued. I believe this creates a 409a excise tax (20%) that would be reported/corrected on a W-2. What I was planning to do is issue a W-2 for that year with the $1.50 x # of options as W-2 income and check the box 12 code for 409a penalty which is code z (which will also calculate the 20% penalty). Essentially nearly the entire $1.50/share is income since the options were granted at virtually zero. Also, the options vested immediately which is why I want to include everything in one W-2 that tax year they were granted. I'm just making sure I'm on the right patch. Thanks, Larry



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    Laurence Sarner
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  • 11.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:10

    Hi Larry. It definitely sounds like you are on the right path but we would need more information on the specific facts. Perhaps it would make sense to reach out to us directly on this?



    ------------------------------
    Samantha Greenbaum
    ------------------------------



  • 12.  RE: Ask us anything: Taxes with Withum

    Posted 02-04-2025 01:06

    Thank you for organizing this AMA session! It's great to have experts like Sam and Nicole providing insights on such important tax topics for founders and employees in the tech space. Equity compensation can be complex, especially when considering tax implications for both companies and individuals, so I appreciate the opportunity to ask this question.

    RSUs appear to be the only way to acquire common stock without any cash payment. What are the tax advantages and disadvantages of RSUs compared to granting standard stock option or issuing common stock, both for the company and the recipient (optionee)?

    For non-U.S. residents, what is the best method in terms of tax efficiency and compliance burden for both the company and the employee? (Between RSU, ISO or NSO)

    For U.S. residents, which is generally preferable between ISOs and RSUs from a tax perspective?

    Lastly, does the public or private status of a company change these considerations?

    Thank you in advance, 



    ------------------------------
    Igniters Legal
    ------------------------------



  • 13.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:19

    RSUs are taxed upon vest as ordinary income to the recipient. There is no cost to exercise, only tax due upon vest. Recipients do not have an option to "purchase" or "time" the recognition of income like NSOs. Generally, RSUs are the least complex equity compensation to provide.

    For US residents, ISOs receive preferential tax treatment, if they meet holding period requirements. Depending on the holding period of ISOs, on exercise there is potentially no tax due, since the exercise results only in a positive AMT adjustment. Individuals will be out of pocket for the exercise price of the ISOs. On the other hand, RSUs vest according to their vesting schedule, there is no exercise price, but will trigger tax in the year they vest. 

    We cannot comment on non-US residents' treatment.



    ------------------------------
    Nicole Angiuoli
    ------------------------------



  • 14.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 07:46

    Hello, 
    If a corporation issues RSA under an equity incentive plan, what is the appropriate way to track that in Quickbooks?  Example, let's say that the FMV 409A valuation is $1.00 and the company issues 1000 restricted shares to a consultant as a non-qualified award.  This results in $1,000 income to the consultant but no cash was paid. Somehow the company needs to record it so that the consultant receives that income on her 1099, and the company has it recorded in its books appropriately. 
    Thank you!   



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    Chad Stamper
    ------------------------------



  • 15.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:15

    Hi Chad. RSAs are typically taxed as they vest based on the FMV at time of vesting. What is the vesting schedules for these awards? The entire $1,000 isn't necessarily treated as income immediately unless an 83b election is made. When the recipient recognizes income, the Company can take a deduction but this is not booked on the financials, it is a tax adjustment only. For financial reporting purposes, the expense related to the RSA is recorded a compensation expense as it vests. 



    ------------------------------
    Samantha Greenbaum
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  • 16.  RE: Ask us anything: Taxes with Withum

    This message was posted by a user wishing to remain anonymous
    Posted 02-05-2025 09:19
    This message was posted by a user wishing to remain anonymous

    Hi Sam and Nicole, 

    Thank you for organizing this forum and for taking the time to address our questions. 

    I am in bootstrapping my startup and am paying for contractors who are developing the product (business process and tech).

    • What is needed to claim R&D tax credits for the work the team is doing?
    • How do the credits off-set the tax liability? 

    Thank you for your help.  




  • 17.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:22

    Here is my response to each question:

    1. What is needed to claim R&D tax credits for the work the team is doing? R&D credits can be claimed if the work is being done in the US. Contractors are eligible as well but only 65% of their costs can be included in the computation. You would need to include for 6765 on a timely filed (or timely extended) tax return. You would need to maintain detailed records of qualifying expenses to support the credit amount.
    2. How do the credits off-set the tax liability? They can be used to offset your income tax liability but if you are still operating at a loss you can also use them to offset payroll taxes if you have gross receipts of less than $5M for the current year and did not have gross receipts for any tax year before the five tax year periods ending with the current tax year. Withum has an R&D team if you are interested in pursuing the credit. 


    ------------------------------
    Samantha Greenbaum
    ------------------------------



  • 18.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 09:49

    Thanks, Nicole and Sam, for organizing this event. We are new to Carta and appreciate the resources available through the platform.

    I am looking for a new tax firm to assist with our tax filings this year. Specifically, we have questions about sales tax for our medical devices in California and need to get the tax-exempt form filed as soon as possible.

    Could you connect with me to discuss this further and outline the next steps?

    Looking forward to your response.

    Best,
    Grace



    ------------------------------
    Grace Chen
    ------------------------------



  • 19.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:10

    Thank you for organizing this AMA session! It's great to have experts like Sam and Nicole providing insights on such important tax topics for founders and employees in the tech space. Equity compensation can be complex, especially when considering tax implications for both companies and individuals, so I appreciate the opportunity to ask this question.

    RSUs appear to be the only way to acquire common stock without any cash payment. What are the tax advantages and disadvantages of RSUs compared to granting standard stock option or issuing common stock, both for the company and the recipient (optionee)?

    For non-U.S. residents, what is the best method in terms of tax efficiency and compliance burden for both the company and the employee? (Between RSU, ISO or NSO)

    For U.S. residents, which is generally preferable between ISOs and RSUs from a tax perspective?

    Lastly, does the public or private status of a company change these considerations?

    Thank you in advance.



    ------------------------------
    Igniters Legal
    ------------------------------



  • 20.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:20

    Hi Igniters, 
    Please see my response to your previous question.



    ------------------------------
    Nicole Angiuoli
    ------------------------------



  • 21.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:23

    Hi Grace. More than happy to help you out here. We have a SUT team so we can definitely assist with this and any going compliance for sales and use tax (or income taxes too). Do you want to send me an email since I don't have your contact information. sgreenbaum@withum.com 



    ------------------------------
    Samantha Greenbaum
    ------------------------------



  • 22.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:24

    Hi Grace. More than happy to help you out here. We have a SUT team so we can definitely assist with this and any going compliance for sales and use tax (or income taxes too). Do you want to send me an email since I don't have your contact information. sgreenbaum@withum.com 



    ------------------------------
    Samantha Greenbaum
    ------------------------------



  • 23.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:04

    Can you please confirm the basic principles and timeline for amortizing early-stage losses getting the venture up and running?  Eg let's say I spend = lose $100 K in year 1, then does that offset future profits until the $100 k is burned off?  Or is it amortized over a fixed schedule?  We are about to file our 2nd corporate tax return and I want to ensure we continue to recoup and benefit from those initial net losses thanks!



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    Scott Lyon
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  • 24.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:29

    There are certain types of start-up costs that qualify to be amortized year over year. For our clients, we comb through the general ledger to allocate expenses between what will be amortized versus expensed. For the start-up costs that are not subject to amortization, any excess costs over income will result in a net operating loss (NOL) that will be carried forward indefinitely. The NOL will offset taxable income in future years, however, the NOL deduction is limited to 80% of the taxable income in any given year. 



    ------------------------------
    Nicole Angiuoli
    ------------------------------



  • 25.  RE: Ask us anything: Taxes with Withum

    This message was posted by a user wishing to remain anonymous
    Posted 02-05-2025 10:06
    This message was posted by a user wishing to remain anonymous

    Thanks to the organizers to putting up together this session! It is a great opportunity to get valuable insights on the emerging topics from the experts like Sam and Nicole.
    We are a tech-driven e-commerce company, based outside US. We registered via Stripe a multi-owner LLC in Delaware in June 2024. Both owners are not residents, neither tax-payers in the US.
    We only had few transactions/invoices via Stripe, but majority of the turnover via our bank account in Mercury. Our purchase and sale of services is with the companies outside the US.
    Can you please clarify for us which tax fillings we must do and which info must be included?




  • 26.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:36

    I would recommend that you reach out to your tax advisor since additional information is needed but based on our high level understanding, I would expect Form 1065 would need to be filed for the LLC and each non-US partner will receive a K-1. The non-US partners would then need to each file Form 1040- NR -a  non-resident alien income tax return to report US earned income which would include the K-1. We would be more than happy to help you navigate this separately though. 



    ------------------------------
    Samantha Greenbaum
    ------------------------------



  • 27.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:06

    Hi! I'm wondering about what forms and considerations are critical for a new startup (just incorporate, $0 revenue, $0 funding and just some expenses made personally). Really appreciate your insight!  



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    David Chataway
    ------------------------------



  • 28.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:31

    Hi David

    I would make sure that you have outside legal council that is very familiar with the startup space so that you properly issue equity to the founders and ensure any tax elections if applicable (ie. 83b) are made. We often see this missed and it has repercussions down the line. I would also recommend getting an accounting system in place. We see a lot of our clients use QBO. I would also make sure you are thinking about credits and incentives (ie R&D credit) once the Company starts to grow as well. Income taxes are important as well (had to plug that ofcourse) :-). 



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    Samantha Greenbaum
    ------------------------------



  • 29.  RE: Ask us anything: Taxes with Withum

    This message was posted by a user wishing to remain anonymous
    Posted 02-05-2025 10:33
    This message was posted by a user wishing to remain anonymous

    Thank you for putting this on! I had a question about option buybacks. If a company buys back vested and unvested ISOs (essentially accelerating vesting), what are the ramifications to the company and the employee? Change of control I know allows the acceleration, but what if the change of control scenario prompting the buy back is not a traditional one outlined in the option plan?




  • 30.  RE: Ask us anything: Taxes with Withum

    Posted 02-05-2025 10:41
    Edited by Nicole Angiuoli 02-05-2025 10:41

    Can you clarify your question? Would love to get more information and chat afterwards too.

    Generally, if a company buybacks stock, they were previously exercised. The recipient would need to pay the exercise price and exercise the shares first so they own the shares, then the company would pay the net amount, and it would be considered a disqualifying disposition.



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    Nicole Angiuoli
    ------------------------------