Crowdfunding is a relatively new way for small businesses to raise capital. It is the act of using the internet and social media as a source of funds for the business project. In order to get started, a person pitches an idea to a crowdfunding site. If fortunate enough, they will receive a small contribution from a large amount of people. The concept is not limited to ideas but can also be a business venture, software, capital for college, etc. Anyone who is seeking capital in this manner, must put the total amount needed for the venture and then attempt to spread the word through various social media outlets as well as family and friends. While there is no direct interest in any company, idea, or other situation from these types of websites, there are usually incentives which can include anything from services to information to being able to purchase products earlier than the general public. This form of financing has become a Mecca for up and coming entrepreneurs. The main problem with this source of income, however, is how it will be treated for tax purposes.
There are no current IRS regulations on crowdfunding. In fact, it’s becoming a highly debated form of capital. Is it taxed like simple income to the recipient? Is it categorized as a gift? Will it be subject to sales tax? These are all issues that are unique in each given crowdfunding situation. The Green Group takes each individual situation and determines the best steps forward for each of our start-up clients.
When starting a business the last thing you want to worry about is what taxes your seed capital might be privy to. Don’t get caught unprepared, let us help you grow your business.