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Crowdfunding Tax Tip

Crowdfunding may have tax implications.

Individuals generally may receive crowdfunding funds tax-free if they are gifts to themselves and not related to business ventures.

However, businesses (including individuals operating sole proprietorships) cannot receive tax-free gifts so crowdfunding is basically taxed as revenue.

 Businesses who receive funds from crowdfunding have

 1. sales revenue

2. loans that need to be repaid or

3. issuance of new stock, new partnership interest, new ownership interest

 In most cases, crowdfunding proceeds are not loans that have to be repaid and are not proceeds for issuance of stock or other ownership rights. Therefore, businesses would treat crowdfunding as income.

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Richard Pon CPA, CFP