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Aug 21, 2015 9:44 EST

Taxes applicable to crowdfunding in the US

iCrowdNewswire - Aug 21, 2015

One topic that every crowdfunder must pay close attention is the taxes involved in each transaction. Afterall, unless you are asking for money for a charity project, the act of raising funds is a commercial transaction.

In the US, taxes are applicable to both traditional and equity crowdfunding. Learn what you should consider.

Traditional crowdfunding

Income tax

Crowdcrux.com has a good post explaining what are the taxes involved for a Kickstarter or Indiegogo campaign. When you launch a campaign promising your product or some variations of it, this is a sales process. As such, any income you get is taxed and must be filed. If you conduct over 200 transactions and raised more than $20,000, you should file a 1099 form.

Income in a crowdfund project is the profit you make out of your transaction. The bottomline for crowdfunding is that products are normally shipped in one or two years after the project is successful. That means your expenses can be in the subsequent fiscal year, but you must pay your taxes in the year you raised funds.

Calculate your profit from the project inception to the latest delivered product and keep all the receipts. Be warned that, if you raise funds late in the year, you still should pay your taxes in the current year, even if most of your expenses will be in the next year. Medium has more info on this issue.

Sales taxes

Sales taxes also apply. The laws are different among states, so you should carefully research how you should proceed in your state. Consider consulting a lawyer if you are in doubt.

Exemptions

Charity crowdfunding giving no perks to funders is exempt from taxes.

Be careful when giving gifts to the people who donate money to you. There are some exemptions, but assume any gift you give is a taxable one. If you want to go this way, give something that has no market value (such as a “thank you” email). Read more at IRS page on gifts.

Equity crowdfunding

Equity crowdfunding differs from traditional one as the transaction is an investment, not a pre sales arrangement. The taxes must be paid by your funder, the stakeholder.

As such, there is no income tax or sales tax applicable to the transaction itself. Rather, taxes must be paid when a profit is made, by consolidating a capital gain or loss when the stakeholder decides to sell his security, either to the issuer or a third party.

Law for change has more info on this.

Via iCrowdNewswire
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