SOURCE: US Tax Professionals

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July 13, 2017 18:49 ET

US Tax Professionals Tackles the Tax implications of Crowdfunding

US Tax Professionals explains that the IRS considers revenue from crowdfunding a taxable revenue in new online article

VANCOUVER, BC--(Marketwired - July 13, 2017) - As a team of tax accountants who specialize in cross-border taxation, Mark Schiffer and his team at US Tax Professionals have to stay up-to-date on all the latest trends. Crowdfunding has taken the world by storm, thanks to websites like Kickstarter, GoFundMe, Indiegogo, and Lending Club. However, what most people fail to realize is that the money they raise might be considered taxable by the IRS. For more, go to: http://www.us-taxprofessionals.com/newsletter.php#3

For those who don't know, crowdfunding is the practice of funding a project by gathering contributions online from a large group of backers. It was initially used by musicians, filmmakers, and other creative types to raise small sums of money for projects that were unlikely to turn a profit. However, it is now used to fund a variety of projects, events, and products. It has even become an alternative to venture capital for some.

It's important to understand that all the income a person receives, regardless of the source, is considered taxable income in the eyes of the IRS. That includes crowdfunding dollars.

For example, consider a scenario where someone has developed a prototype of a promising product. They run a Kickstarter campaign to raise additional funding, setting a goal of $15,000 and offering a small gift in the form of a t-shirt, cup with a logo, or bumper sticker to its backers.

The campaign is more successful than anticipated, resulting in $35,000 of donations -- more than twice the original goal. Because something was offered (a gift or reward) in return for a payment pledge, it is considered a sale. As such, it may be subject to sales and use tax.

However, it's not that simple. Even if the campaign only raised the projected $15,000 and no gifts were offered, the money would still be considered taxable income and need to be reported as such on a tax return.

Generally, crowdfunding revenues are included in income as long as they are not:

  • Loans that must be repaid;
  • Capital contributed to an entity in exchange for an equity interest in the entity; or
  • Gifts made out of detached generosity and without any "quid pro quo." However, a voluntary transfer without a "quid pro quo" isn't necessarily a gift for federal income tax purposes.

The article goes on to detail scenarios where income may be offset by business expenses or where it may be considered a non-taxable gift. It then explains how crowdfunded revenue should be reported on a tax return.

Anyone considering crowdfunding to raise money should consult a tax and accounting professional first. Make sure there is revenue set aside for taxes before assigning your dollars to a project. To learn more, contact US Tax Professionals at (604) 949-1559.

About the Company

US Tax Professionals provide tax services for dual American and Canadian citizens in Vancouver. Founded in 2013, they specialize in taxation for US citizens and expats, taxation and accounting for business, cross border taxation for US and Canadian citizens, as well as accounting and taxation of alternative investments, including private equity funds and hedge funds.

For more information, visit http://www.us-taxprofessionals.com/ or call (604) 949-1559.

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