{"id":258,"date":"2019-01-11T20:10:58","date_gmt":"2019-01-11T20:10:58","guid":{"rendered":"http:\/\/www.danaleecpa.com\/blog\/?p=258"},"modified":"2019-01-11T20:10:58","modified_gmt":"2019-01-11T20:10:58","slug":"crowdfunding-tax-implications","status":"publish","type":"post","link":"https:\/\/www.danaleecpa.com\/blog\/crowdfunding-tax-implications\/","title":{"rendered":"Crowdfunding &#8212; What Are The Tax Implications"},"content":{"rendered":"<p>Crowdfunding &#8212; or funding a project through the online contributions of many different backers &#8212; is becoming increasingly popular. If you are considering raising crowdfunding revenue or contributing to a crowdfunding campaign, you will need to address the many tax issues that can arise.<\/p>\n<p>Background<\/p>\n<p>While crowdfunding was initially used by artists and others to raise money for projects that were unlikely to turn a profit, others have begun to see crowdfunding as an alternative to venture capital. Depending on the project, those who contribute may receive nothing of value, a reward of nominal value (such as a T-shirt or tickets to an event), or perhaps even an ownership\/equity interest in the enterprise.<\/p>\n<h3>Is It Income?<\/h3>\n<p>In an <a href=\"https:\/\/www.irs.gov\/pub\/irs-wd\/16-0036.pdf\">&#8220;information letter&#8221; released in 2016,<\/a>\u00a0the IRS stated that crowdfunding revenues will generally be treated as income unless they are:<\/p>\n<ul>\n<li>Loans that must be repaid<\/li>\n<li>Capital contributed to an entity in exchange for an equity interest in the entity<\/li>\n<li>Gifts made out of detached generosity without any &#8220;quid pro quo&#8221;<\/li>\n<\/ul>\n<p>The IRS noted that the facts and circumstances of each case will determine how the revenue is to be characterized and added that &#8220;crowdfunding revenues must generally be included in income to the extent they are for services rendered or are gains from the sale of property.&#8221;<\/p>\n<p>Frequently, the IRS learns of the activity because crowdfunding entrepreneurs have used a third-party payment network to process the contributions. Where transactions during the year exceed a specific threshold &#8212; gross payments in excess of $20,000 <em>and<\/em> more than 200 transactions &#8212; that third party is required to send Form 1099-K (<em>Payment Card and Third-Party Network Transactions<\/em>) to the recipient and the IRS. Payments that do not meet the threshold are still potentially taxable.<\/p>\n<h3>If It&#8217;s Income<\/h3>\n<p>&#8220;Ordinary and necessary&#8221; business expenses are generally tax deductible, but deductions for expenses are limited if the IRS deems the activity a hobby rather than a trade or business. Generally, the IRS applies a &#8220;facts and circumstances&#8221; test to determine if you have a profit-making motive, which is necessary for a trade or business.<\/p>\n<h3>New Businesses<\/h3>\n<p>Favorable deduction rules may be available for certain types of expenses incurred in starting a new business. If eligible, the business may elect to expense up to $5,000 of those costs (subject to phaseout) in the year the business becomes active, with the remainder of the start-up expenditures deducted ratably over a 180-month period.<\/p>\n<h3>For Contributors<\/h3>\n<p>Campaign contributors should not assume that their gifts qualify as tax-deductible charitable contributions. Tax-deductible contributions must meet certain requirements, including that they be made to a qualified charitable organization. If gifts are made to an individual or non-qualified organization, you will generally need to file a gift tax return for gifts to any one recipient that exceed the gift tax annual exclusion ($15,000 for 2018 and 2019).<\/p>\n<p>These are just some of the potential tax issues that may arise. Consult your tax adviser regarding your specific situation.<\/p>\n<p><a href=\"https:\/\/www.danaleecpa.com\/contact.htm\">Connect with us<\/a>, right now, for additional tax advice and planning.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Crowdfunding &#8212; or funding a project through the online contributions of many different backers &#8212; is becoming increasingly popular. If you are considering raising crowdfunding revenue or contributing to a crowdfunding campaign, you will need to address the many tax issues that can arise. Background While crowdfunding was initially used by artists and others to [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-258","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-uncategorized","7":"entry"},"_links":{"self":[{"href":"https:\/\/www.danaleecpa.com\/blog\/wp-json\/wp\/v2\/posts\/258","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.danaleecpa.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.danaleecpa.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.danaleecpa.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.danaleecpa.com\/blog\/wp-json\/wp\/v2\/comments?post=258"}],"version-history":[{"count":2,"href":"https:\/\/www.danaleecpa.com\/blog\/wp-json\/wp\/v2\/posts\/258\/revisions"}],"predecessor-version":[{"id":260,"href":"https:\/\/www.danaleecpa.com\/blog\/wp-json\/wp\/v2\/posts\/258\/revisions\/260"}],"wp:attachment":[{"href":"https:\/\/www.danaleecpa.com\/blog\/wp-json\/wp\/v2\/media?parent=258"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.danaleecpa.com\/blog\/wp-json\/wp\/v2\/categories?post=258"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.danaleecpa.com\/blog\/wp-json\/wp\/v2\/tags?post=258"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}