With the growing popularity of crowdfunding, many of you are probably wondering about the tax implications that comes with it – and if you’re not, maybe you should be. There are no strict rules yet, but here are some general guidelines.
Websites such as gofundme.com and causes.com that raise money for charitable causes, lend your friends and neighbors a helping hand in times of need, or for personal goals, are great ways to raise money and do not count as taxable income (for now). These donations would be considered a gift and the accounts created would just be facilitators of this gift. However, don’t expect to get a deduction if you donate to one of these funds. If you aren’t donating directly to a registered charity or non-profit, it can’t be considered a charitable contribution.
Other sites, such as kickstarter.com or indiegogo.com, are used for individuals to raise funds to jump start their careers or start a business. These donations are no longer considered a gift but instead can be taxed as income. Keep this in mind when starting one of these funds. If you are just starting up, it most likely can still be considered a startup expenditure and expensed. However, if you are currently making profits from this activity, you will be adding these funds to your income. So if you aren’t incurring enough expenses to counteract this income, make sure that you save up enough money to pay the tax bill at the end of the year.
Overall, this is a fairly new concept and tax laws have not been completely determined. This leaves a lot of gray areas (Yay, room to play!). So before you start up a crowdfunding account, you may want to seek a tax professional (or at least someone that you can blame later) to get an opinion on your specific situation.
By Joanna M. Yergler