I am about to run a crowdfunding campaign, which will end mid-november. That gives me 1.5 months to spend the funds on project expenses--not really feasible given that it's all destined for ongoing server and development costs--before it all gets taxed as income.

I submitted paperwork for an LLC but it does not look like I will get my EIN before the campaign starts, so I will be receiving the funds personally and then transferring them to the LLC.

I have been told that accrual accounting is the right way to get around the issue of receiving funds late in the year.

Is there anything I need to do before I start the campaign so I don't screw up my ability to set up accrual accounting? Should I set it up for myself personally, or for the LLC? And is there anything to watch out for when transferring the money from myself to the LLC (timing, maybe)?


1 Answer 1


This answer assumes you're asking about how to handle this issue in the USA. I generally downvote questions that ask about a tax/legal issue and don't bother providing the jurisdiction. In my opinion it is extremely rude.

Seeing that you applied for an LLC, I think that you somehow consider it as a relevant piece of information. You also attribute some importance to the EIN which has nothing to do with your question. I'm going to filter out that noise.

As an individual/sole-proprietor (whether under LLC or not), you cannot use fiscal years, only calendar years. It doesn't matter if you decide to have your LLC taxed as S-Corp as well, still calendar year. Only C-Corp can have a fiscal year, and you probably don't want to become a C-Corp.

So the year ends on December 31, and whether accrual or cash - you can only deduct expenses you incurred until then. Also, you must declare the income you got until then, which in your case will be the full amount of funding - again regardless of whether you decided to be cash-based or accrual based.

So the main thing you need to do is to talk to a licensed tax adviser (EA/CPA licensed in your state) and learn about the tax law relevant to your business and its implications on your actions. There may be some ways to make it work better, and there are some ways in which you can screw yourself up completely in your scenario, so do get a professional advice.

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