I recently attended an event at the UNCW Center for Innovation and Entrepreneurship (CIE) that had Breanna DiGiammarino from Indiegogo speak about crowd funding. It was a well attended and informative event and we covered a lot of the ins and outs of raising money via crowd funding. However, we did not get in to some of the tax considerations of moneys received from individuals via sites like Indiegogo and Kickstarter.
The income you receive is considered income (sales) for tax purposes. You may be able to offset a good amount of that income with expenses, but realize that it still is much different than if an outside investor made an investment in your company. In that scenario, it may be done before the company begins (with no real tax implications) or could have some capital gain implications for shareholders. We can get in to more of the details of that on another day- today our focus is crowd funding and tax implications. You need to set aside money for the income tax considerations of the use of crowd funding sites.
Another consideration with crowd funding is if you offer a product for a commitment should you collect sales tax on that sale? You should be if you are delivering a physical product, but most crowd fundraisers do not appear to be. Eventually, the states will wise up to this missed revenue stream and pursue it.
Crowd funding sites are viable options for plenty of different businesses. However, entrepreneurs need to be aware of the potential tax implications of their use and should speak with a CPA about their specific situation.