Crowdfunding and Income Taxes

Document Type

Article

Publication Date

10-1-2015

Publication Title

Journal of Accountancy

ISSN

1945-0729

Abstract

Crowdfunding has grown into a prominent internet-based vehicle for raising money from a large number of people who may have little in common other than a desire to contribute to the success of the project or other endeavor. On websites such as kickstarter.com and indiegogo.com, "creators" or initiators of a fundraising campaign seek contributors, or "backers," to finance their projects. Other sites, such as gofundme.com or causes.com, feature fundraisers for personal or charitable endeavors.

Thousands of businesses and individuals have succeeded in attracting funding through these sites, but often with little thought to the ramifications for income taxes. Congress and the IRS have not addressed crowdfunding income specifically, leaving scant guidance for CPA tax advisers whose clients may have this source of income. Consequently, there are few, if any, definitive guidelines, especially in view of the variety of types of arrangements and transactions that crowdfunding has taken so far, with still more options likely to come. Still, applying common tax principles and common sense may help tax preparers and advisers in talking through the issues with their clients who have taxable crowdfunding income and deciding how to report and pay taxes on it. This article provides some points to cover and related considerations.

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