Taxes and Crowd Funding

Everyone always asks how is the money from crowd funding taxed. The answer is always- it depends. I know you hate that. I hate that too. However, everyone’s situation is different. First of all, you need to let your tax professional know you have gotten funds from crowd funding. You must explain to that person what you are doing and how you are using the money.

If you are a non-profit, the tax consequences will be much different than if you are a for-profit business. If you have actually started a business, the tax consequences will be different than if you do not own any type of business. You have to decide if it is part of your personal taxes or your business taxes. All of this can be done BEFORE you raise money using crowd funding.

In the near future, there will be plenty of tax professionals who specialize in crowd funding situations. Right now you may need to educate them on what you did and exactly how you did it. Have all your records available for them. Show them which websites you used. Have copies of your emails and any offline materials you used to assist them in becoming familiar with crowd funding. Because this is such a new area you have to give them everything they need to set up your taxes correctly. There is nothing wrong with paying what you owe, you just don’t want to pay more than you owe. It takes a forward thinking tax professional to make it work for you.

Here are some No-Cost Workshops on the topic of Crowd Funding: Click Here!

March is national Crowd Funding Month

As you think about different ways to fund your project or business, you cannot help but think of crowd funding as a source. Most people have never even heard of crowd funding. Those who have may be confused about it. It’s worth taking the time to know about it. It’s good to have enough information so that crowd funding is an option for you.

Creating a project is not hard, however creating practical rewards might be. You need to think about those who are supporting your effort. What would they want? What would they need? What would be so remarkable that they would tell others about it? Some people will give just to support your cause. Most people think about what’s in it for me? They want something novel or unique. I have one client who is a musician. The most popular reward he gave was a song that included the givers name. Who wouldn’t want their own song in an mp3 by their favorite artist? Most of the people had purchased his last CD. They were already fans and were delighted to get this perk. Then he had a whole new set of people who wanted that mp3 for a gift. No matter how many people he gave it to, it was still unique to that person. My client assured me that this special mp3 did not involve writing a new song each time and it was something that he could easily do for anyone who asked for it. This reward was a huge homerun. If you can find a unique reward like this, you will get more than enough support for your project.

When is the best time to do your own crowd fund? Now! People are getting their tax refund and have some extra cash on hand. Also, it’s before the summer. In the summer, employment numbers change. Some seasonal workers like teacher are out of work and then you add youth workers who are out of school and looking for a job.
Unless your project is a fun activity or you have a strong base to work with, the summer can be tricky.

Make a decision this month to get your crowd fund happening!