Crowdfunding 101: Is it Deductible?

9 Feb

Crowdfunding 101: Is it Deductible?

Crowdfunding is quite good for those clients who are looking to raise funds for a particular project including venture and invention. So why is crowdfunding so unique? It can raise material amounts of capital that one client or organization would need to register with the SEC. You can go through a lot of paperwork and tons of expensive compliance.

Crowdfunding is done through website platforms including ones like kick starter and Go Fund Me. Such websites allow any individuals to look for funding to campaign and ask for funds from investors to fund these ventures or projects. This unique funding method is quite good and very much interesting from the investor’s point of view. Investors can provide any kind of funding for a project without any cost through philanthropy, future equity position and other rewards that are included in the noted agreement.

What are the major tax implications? The major tax implications of crowdfunding are quite new to tax experts. When you look at tax implications you have to first identify the clients of campaigns. Was crowdfunding in question as an equity-based project? In order to be clear, did the investors receive any kind of equity stake in an exchange of their funds? Yes, there are some funders who will finance projects for honorable mentions and coffee mugs. Honourable mentions do not involve any kind of debt positions or equity exchanges are not considered as investments.

Thus they are not deductible as losses or charity in most of the cases. But, in case the funder provides funds in exchange for the equity position, the taxpayer will have a basis in the company and would recognize losses or gains on Schedule D just like any other publicly traded stock of the company.

Crowdfunding is new and like many other investment modes, it should be dealt with proper diligence for those who are investing for equity positions. Luckily, for those who are taking such risky equity positions, the IRS will allow any capital losses that are incurred and be deductible up to its capital loss ceiling.

For more details please visit Accountant in Uxbridge

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