Reward-based crowdfunding involves an exchange of goods and services for a monetary donation, whereas, in equity-based crowdfunding, donors receive equity for their contribution. Are Crowdfunding Donations Taxable? This is where it can get tricky. As the agent, or person who set up the crowdfunding account, the money goes directly to you; however, you mayormaynotbethebeneficiaryof the funds. If you are both the agent and the beneficiary, you would be responsible for reporting this income. If you are acting as “the agent”, and establish that you are indeed, acting as an agent for a beneficiary who is not yourself, the funds will be taxable to the beneficiary when paid - not to you, the agent. An easy way to circumvent this issue is to make sure when you are setting up a crowdfunding account such as GoFundMe you designate whether you are setting up the campaign for yourself or someone else. However, money donated or pledged without receiving something in return may be considered a “gift.” As such the recipient does not pay any tax. Up to $15,000 per year per recipient may be given by the “gift giver.” Let’s look at an example of reward-based crowdfunding. Say you develop a prototype for a product that looks promising. You run a Kickstarter campaign to raise additional funding, setting a goal of $15,000, and offer a small gift in the form of a t-shirt, cup with a logo, or a bumper sticker to your donors. Your campaign is more successful than you anticipated it would be and you raise $35,000 - more than twice your goal. SOAR TO SUCCESS / Core Business Strategies Taxable sale. Because you offered something (a gift or reward) in return for a payment pledge it is considered a sale. As such, it may be subject to sales and use tax. Taxable income. Since you raised $35,000, that amount is considered taxable income. But even if you only raised $15,000 and offered no gift, the $15,000 is still considered taxable income and should be reported as such on your tax return even though you did not receive a Form 1099-K from a third party payment processor (more about this below). Generally, crowdfunding revenues are included in income as long as they are not: • Loans that must be repaid; • Capital contributed to an entity in exchange for an equity interest in the entity; or • Gifts made out of detached generosity and without any “quid pro quo.” However, a voluntary transfer without a “quid pro quo” isn’t necessarily a gift for federal income tax purposes. Income offset by business expenses. You may not owe taxes however, if your crowdfunding campaign is deemed a trade or active business (and not a hobby) your business expenses may offset your tax liability. Seek Professional Tax Advice If you’re thinking of using crowdfunding to raise money for your small business, call a tax and accounting professional who will evaluate your tax situation and help you figure out a course of action that will help your small business succeed.
RkJQdWJsaXNoZXIy MTQ2Nzk4