T-shirts and Calculators: Crowdfunding and Taxable Income by Joshua Lance
For many startups= getting cash in the door can be challenging. However, crowdfunding companies like Kickstarter and Indiegogo have made raising money for your startup fairly easy. Here’s how it works: you post your idea to their website and get people to contribute small amounts of money. Hopefully you raise enough cash to “kick start” your idea or startup. Pretty easy right?
Many people neglect to take into account that the money you receive from your crowdfunding campaign is considered income- thus you are required to pay taxes on that income!!!
HERE IS YOUR REMINDER!!! DON’T FORGET ABOUT THE TAXES!!!
Why are funds raised through these means considered income? Money raised through these crowdfunding sites cannot be considered equity or debt. Those supporting your campaign do not have ownership over your product, company, or idea and they will not be repaid for their investment. The funds raised are yours to use as you see fit and in exchange your backers are receiving an item or service for their contribution. This is considered a business transaction- buying and selling goods/services between two willing and able parties; meaning, the money received is taxable income.
To be clear, I am only speaking to crowdfunding campaigns that are raising money for a particular product, project, or business related goal. Money raised through these vehicles for medical expenses or personal need is generally considered a gift and is not taxable to the recipient. However, if the site issues you a 1099K or other tax document, you need to account for this on your tax return. In most circumstances, if you are unsure, please contact a CPA to make sure you get the proper advice.
While there are many things to consider when crowdfunding a startup, taxes on your received funds is not one you want to neglect. Remember, if you have any questions, don’t hesitate to reach out to us here at Joshua Lance, CPA, LLC!