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Ask me Anything Tax - Answered by Withum

  • 1.  Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:04

    Hi Carta Community! Excited to kick off the Ask Me Anything event today!

    My name is Sam Greenbaum and I am tax partner at Withum in the firm's Technology and Emerging Growth Services Group. 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. 

    I am 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, I am dedicated to servicing my clients and building lasting relationships. I also focus my time 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.



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    Samantha Greenbaum
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  • 2.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:05

    I am Daniel Krolikowski, the team leader of Withum'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.  I am looking forward to helping answer the community's questions today!

    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.



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    Daniel Krolikowski
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    Original Message


  • 3.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:05

    Before we get started the discussions and materials presented for this event 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.



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    Samantha Greenbaum
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    Original Message


  • 4.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:08
    Need quick insight on Advisory Shares
     
    I am getting paid in 4.5 yrs vesting schedule w) 6 month cliff.
     
    1 class of Common 
    Some trigger/accelerator events that I can control.
     
    I need to file my 83(b) letter with IRS immediately-Today. (To accelerate the vesting ((on paper)) and pay income taxes on all the R shares today. 
    My challenge is: what do I put for the "Fair Market Value" of the private shares? 
     
    There are NO 409a valuations or outside funding rounds that value the equity. 
     
    Can I just use the par value?
     
    The Only cash investment (equity) is from the main founder (50% ownership). Can I use this as the valuation?  🤏
    It is probably under $100k with some IP. 
     
    Then divide my minority % and apply a standard discount % for illiquidity/marketability (restricted stock)? 
    Thank you very much 🙏
    📈🤞



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    Phillip Cantore
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    Phillip Cantore
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    Original Message


  • 5.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:15

    Hi @Phillip Cantore. Absent a 409a valuation, the board would need to set a price for the value of the shares using a reasonable method. However, if the FMV has not changed from the date you paid for your shares then there is no ordinary income to report. 



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    Samantha Greenbaum
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    Original Message


  • 6.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:21

    Hi,

    I'm a startup founder and I incorporated our C-Corp in DE in March 2023. We haven't had any revenues last year. And got  our first round to fundraising in Jan 2024.  We were bootstrapping the company from our own pockets last year (which have been incorporated into a promissory note).

    In terms of tax, what are high level bucket items that I need to check off? I can think of the following: 

    1. Delaware Franchise Tax Report (and the franchise tax) - Done.
    2. CSC Renewal payment - Done
    3. Federal Taxes - Not done. How to do it?
    4. State Taxes - Not done. How to do it? (Company HQ'ed in MA)

    Will items 3/ and 4/ take a lot of time, given that we didn't have any revenues last year?

    Are there any other high-level items that I need to be worried about? 

    I already sent my 83(b) when we incorporated the company. Do we need to file it again with personal returns?



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    Pracheer Gupta
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    Original Message


  • 7.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:35

    Hey @Pracheer Gupta  If you have a C-Corporation that was formed in 2023, Corporate income tax returns must be filed by 4/15/2024, unless extended.  You can file these returns yourself, or hire a company like Withum to assist you with these filings.  States all have different nexus thresholds for filing in those states and additionally have rules about apportioning income or losses to those states.  Even though the company is pre revenue, it may technically be required to file these returns and any net operating loss should be allowed to be carried forward to future tax periods.  

    Regarding the 83(b) election, these are no longer required by the IRS to be attached to the returns, but there should be no downside in doing so.



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    Daniel Krolikowski
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    Original Message


  • 8.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:46

    @Pracheer Gupta You do not need to include your 83(b) with your personal return. In terms of high level items, definitely need to make sure your federal and state tax returns are filed. It seems only federal and MA would be required from your note. I would recommend you find a CPA to prepare your returns to ensure that they are completed properly. I don't think your returns would be very complex for an initial year with limited activity, but you would want to make sure any startup costs are being properly capitalized for tax purposes. 



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    Samantha Greenbaum
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    Original Message


  • 9.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 11:30

    Thanks to everyone who participated today! If you have any other questions please feel free to email Dan or I directly. Our email addresses are:

    sgreenbaum@withum.com

    dkrolikowski@Withum.com

    Please also connect with us on linkedin! 

    https://www.linkedin.com/in/samantha-greenbaum/

    https://www.linkedin.com/in/danielakrolikowski/" href="https://www.linkedin.com/in/danielakrolikowski/" rel="noreferrer noopener" target="_blank" class="fui-Link ___1rxvrpe f2hkw1w f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh fhgqx19 f1olyrje f1p93eir f1nev41a f1h8hb77 f1lqvz6u f10aw75t fsle3fq f17ae5zn" title="https://www.linkedin.com/in/danielakrolikowski/">https://www.linkedin.com/in/danielakrolikowski/



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    Samantha Greenbaum
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    Original Message


  • 10.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:05

    I purchased and received unrestricted shares of Common Stock a couple of years ago. As part of negotiations in a new raise, these shares will be subject to new time-based vesting restrictions. Am I still eligible to file an 83(b) election? It is unclear if I lost the chance to do so based on the original issue date even though these wereoriginally unrestricted shares.



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    P V
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    Original Message


  • 11.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:11

    Hey @P V the IRS came out with Rev Ruling 2007-49.  Generally, per situation 1 in this Rev Ruling, when vesting restrictions are imposed on previously purchased fully vested stock, the  imposition of vesting restrictions is disregarded and the stock is treated as purchased at the time of the original purchase.  However, there should not be any downside to protectively filing an 83(b) election.



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    Daniel Krolikowski
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    Original Message


  • 12.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:32

    Thank you Daniel, 

    My "par value" purchase price is $1.

    Do I still need to know my FMV (today)?

    --- what if this is the next unicorn? 🤞

    😎

    If the IRS published this in 2007...

    Why do all the "gurus" still talk about 83b? 



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    Phillip Cantore
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    Original Message


  • 13.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:49

    @Phillip Cantore  Generally, yes, need to know FMV.  However, could be that FMV is equal to par value depending on the facts and circumstances.



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    Daniel Krolikowski
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    Original Message


  • 14.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:10

    What might an Australian or British company who is setting up a US C-Corp as an operating entity need to know from a tax perspective? Asking as a few prospective clients (I do fractional operations work) have come my way with this situation.



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    Ann Marie Guzzi
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    Original Message


  • 15.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:19

    Hi @Ann Marie Guzzi  Before entering the US, it would be advisable to have a global tax planning strategy in place to make sure that the entities are set up in a way that is most tax efficient. With that being said, a DE C-Corp is the most common entity we see. There also is a concept called transfer pricing that is required from both a US and foreign tax perspective that requires an agreement between related parties to ensure that any intercompany transactions are conducted at "arms length". 



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    Samantha Greenbaum
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    Original Message


  • 16.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:27

    Thanks Samantha. One of them has already the C-Corp in DE though I think without doing tax planning in advance. Transfer pricing matters when the subsidiaries are exchanging goods/services right to make sure it's a fair rate? It wouldn't apply for the initial funding contribution into the US company?



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    Ann Marie Guzzi
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    Original Message


  • 17.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:34

    @Ann Marie Guzzi Typically the investment into the entity wouldn't have transfer pricing but just need to make sure its being booked properly to reflect the transaction. 



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    Samantha Greenbaum
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    Original Message


  • 18.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:11

    Filing 83(B) election letter via USPS Certified W) Return Receipt. 

    How do I calculate the FMV of my (vested) restricted stock ? 

    There is no 409A or outside funding to value it... 



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    Phillip Cantore
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    Original Message


  • 19.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:17

    Hi Phillip. Absent a 409a valuation, the board would need to set a price for the value of the shares using a reasonable method. However, if the FMV has not changed from the date you paid for your shares then there should be no ordinary income to report on the 83(b) election.



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    Daniel Krolikowski
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    Original Message


  • 20.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:16

    Revenue recognition for SaaS companies is complex and important. It feels like each company is left to develop their own policies, even though it impacts so many companies. Is there a good starting point policy draft available that was built on the foundation of ASC 606 revenue recognition standards?



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    Jeffrey Basch
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    Original Message


  • 21.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:22

    Hey @Jeffrey Basch, this may be more of a financial statement question than a tax question.  However, to my knowledge, there is nothing mainstream available that is a "starting point" persay.   You may be able to look at public company filings to see how they are handling.  Withum has other team members that are proficient on this issue if you want to submit an inquiry through the Withum website.



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    Daniel Krolikowski
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    Original Message


  • 22.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:17

    If you're a Delaware C-Corp, are the only things that determine your Delaware Franchise Tax the number of authorized shares and the cash in your bank accounts on December 31st?



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    Norman Paradis
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    Original Message


  • 23.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:22

    @Norman Paradis It depends whether or not you authorized additional shares during the year. If additional shares were authorized, then you would include shares issued and outstanding as of the dates they indicate and total assets as of that date as well. If no additional shares were authorized, then you would include the total shares issued and outstanding at the end of the year and total assets on 12/31 as well. 



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    Samantha Greenbaum
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    Original Message


  • 24.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:27

    What specifically does Delaware consider assets?  How do they value those assets?  Would it include the value of intelectual property?   Real estate?



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    Norman Paradis
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    Original Message


  • 25.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:36

    @Norman Paradis Here is a link to the FAQ on the DE site which helps answer this: Frequently Asked Tax Questions - Division of Corporations - State of Delaware

    Title 8 Chapter 5 § 503 (i) states such total assets and total gross assets shall be those "total assets" reported to the United States on U.S. Form 1120 Schedule L, relative to the company's fiscal year ending in the calendar year prior to filing with the Secretary of State pursuant to this section. If such schedule is no longer in use, the Secretary of State shall designate a replacement. The Secretary of State may at any time require a true and correct copy of such schedule to be filed with the Secretary of State's office.  If such schedule or its replacement reports on a consolidated basis, the reporting corporation shall submit to the Secretary of State the consolidating ending balance sheets which accompany such schedule as a reconciliation of its reported total assets or total gross assets to the consolidated total assets reported on the schedule.  Interests in entities which are consolidated with the reporting company shall be included within "total assets" and total gross assets" at a value determined in accordance with generally accepted accounting principles.



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    Samantha Greenbaum
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    Original Message


  • 26.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:18

    Say you have equal amounts ISOs and NSOs, and want to partial early exercise. Which would be more beneficial to exercise first in the long run? 



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    K C
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    Original Message


  • 27.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:31

    There are a lot of considerations here but I would probably recommend NSOs first. When NSOs are exercised the gain on exercise is taxed as ordinary income so if you early exercise you would be reducing the amount taxable as income. ISOs are not taxed when exercised so you avoid this anyway (unless you fall into AMT or ISO disqualifying disposition).  To qualify for long term cap gains for ISOs, you need to hold your shares for at least two years after your option grant date and one year after exercising. For NSOs, you need to hold your shares for at least one year after exercising which gives another point to exercising NSOs first also. 



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    Samantha Greenbaum
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    Original Message


  • 28.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:22

    Let's assume a business has already raised a seed round. Does the IRS (or other regulatory body) define requirements that a "Series A" round must meet? Round size, who can participate (existing investors vs. external), change in valuation since the seed, etc.? 



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    Scott Heimendinger
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    Original Message


  • 29.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:29

    Hey @Scott Heimendinger, while the industry often distinguishes between funding rounds by type of investor or series round, it is my understanding that the IRS or other regulatory bodies do not necessarily differentiate the rounds in the same way.



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    Daniel Krolikowski
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    Original Message


  • 30.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:30

    Hi, how should a SaaS company think about VAT/sales tax. We're a US company and have customers in US, UK and some other European countries. MWhich countries does a US SaaS company you don't need to charge sales tax/VAT in?



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    Paul Dudley
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    Original Message


  • 31.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:41

    Hi @Paul Dudley This is a pretty complex question. First I will answer the US. Step 1 is identifying which states you have nexus in and then once you identify that, step 2 would be determining whether or not your revenue is taxable in those states. Not all states tax SAAS but oftentimes the language in your contracts/invoices could also imply sales relate to other services that are taxable (ie digital services). As it relates to foreign sales, similar to the US every country has different rules on whether or not SAAS is taxable and you also would need to see if your sales are over a threshold that would create a filing requirement. Foreign countries often classify SAAS as digital services which tends to be taxable in a number of jurisdictions. 



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    Samantha Greenbaum
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    Original Message


  • 32.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:36

    Hello,

    I had a question related to share option exercises and self directed Roth IRAs: Are founders allowed to pay for the exercises from cash within a self directed Roth IRAs?

    I think there might be some rules around control, but is there a definition of control?

    Best,

    Nico




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    Nicolas Perez
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    Original Message


  • 33.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:45

    Hey @Nicolas Perez, unfortunately I believe the answer is no.  Generally, under IRC Sec. 219(e)(1), contributions to IRA's, except for rollover contributions, must be in cash.  IN addition, IRA's can generally not purchase shares from a disqualified person under IRC Section 4975(c)(1)(A).  You can still check with the self-directed IRA custodian to see if the IRA can purchase private shares from a non disqualified person.



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    Daniel Krolikowski
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    Original Message


  • 34.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 11:00

    Greetings all, we are developing a new product and service in which we place hardware in the client site and retain ownership of it, while the client uses the equipment. In order to use the hardware, they must pay an annual subscription (paid up front) for the operating software. Two questions:

    1. What are the sales tax implications in this situation in the US?
    2. What are the VAT implications in UK/EU?   


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    Ryan Hellpap
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    Original Message


  • 35.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 11:11

    @Ryan Hellpap from a US perspective, you will have nexus in every state that your hardware is physically present. If you have material revenue you may already be establishing nexus even if you didn't have a physical presence (economic nexus).  In terms of taxability, this must be looked at for each state you have nexus in since having a hardware component with a SAAS offering can impact the taxability. In regard to the foreign implications we would need to reach out to our affiliate firms in the UK/EU to get you an answer but I would expect that there could definitely be some VAT implications for this as well. 



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    Samantha Greenbaum
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    Original Message


  • 36.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 11:42

    Thank you Sam



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    Ryan Hellpap
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    Original Message


  • 37.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 10:59

    I've been told that I need to start thinking about QSBS. Could you please explain the qualifications and benefits of being a QSB and how it can impact taxes for founders?



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    Mira Liu
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    Original Message


  • 38.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 11:03

    Hey @Mira Liu, you definitely should consider Sec. 1202/QSBS.  This is a gain exclusion provision that was enacted in 1993. The percentage exclusion changed over time and but if you acquired your stock after  September 28, 2010 the exclusion would be 100% if your stock meets the requirements. The gain is limited to 10M or 10X basis, whichever is greater  and there are strategies to maximize and stack these amounts. There are both shareholder and Company requirements that must be met in order for stock to be QSBS. If these requirements are met then your shares could be eligible for QSBS treatment if you HOLD it for 5 years before selling it.  Here is some additional info: 

    • https://www.withum.com/resources/planning-to-sell-your-c-corporation-stock/
    • https://www.withum.com/industries/technology-services/founders-and-tech-executive-services/qualified-small-business-stock-section-1202/



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    Daniel Krolikowski
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    Original Message


  • 39.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 11:07

    Thank you Daniel! I'll start checking these out. 



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    Mira Liu
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    Original Message


  • 40.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 11:14

    What is the process to move pre-IPO options form Carta to ROTH ira? Is that allowed?



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    Daryl West
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    Original Message


  • 41.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 11:18

    Hey @Daryl West generally, under IRC Sec. 219(e)(1), contributions to IRA's, except for rollover contributions, must be in cash.  In addition, IRA's can generally not purchase shares from a disqualified person under IRC Section 4975(c)(1)(A).  You can still check with the self-directed IRA custodian to see if the IRA can purchase private shares from a non disqualified person.



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    Daniel Krolikowski
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    Original Message


  • 42.  RE: Ask me Anything Tax - Answered by Withum

    Posted 03-19-2024 11:35

    A huge THANK YOU and shoutout to Dan and Sam from Withum for hosting today's event! We seriously appreciate your time and expertise in helping so many with their questions today. Everyone please be sure to keep Withum in mind for your tax and accounting needs. 



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    Brent Devey
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    Original Message


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