Is Crowd-Funding for you?

Time and interest has been set aside for the purposes of researching the tax implications of the ever growing and popular crowd-funding. The problem right now is that there appears to be no on-point specific guidance from the IRS regarding the tax treatment of funds channeled through such programs. So, we’re left with the traditional gift vs. income analysis. This type of analysis is very fact specific and you should always consult with a Tax Professional to review the specifics of your personal circumstance.

Some common conclusions in the research of this topic center on whether the fund providers (those actually giving the money) are getting anything substantial in return for the money given to the crowd-funding sites. If they are, then it appears to be more of a sale and such funds are treated as income. If nothing is exchanged for the money, then the general consensus is that such funds are treated as a gift. Any gift tax that might be due is the responsibility of the donor. Nonetheless, current tax law allows a donor to gift up to $14,000 per year to a donee without a gift tax consequence (i.e., the annual per donee exclusion amount).

It has been said that “By law it is your responsibility to report any income you generate from your booster campaign or crown-funding account regardless of what it is for. Residents of the U.S. are required to fill out a 1099 tax form if this income is in excess of $600”.

It is extremely crucial that you review your specific circumstance with a Tax Professional to ensure that you report, as income, those amounts that are deemed as such under current tax law. In any case, I’m sure we’ll be seeing more guidance from the IRS relatively soon on this matter as it appears to be a growing phenomenon.

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