If You’re a Crowdfunded Start-up, Don’t Overlook the Tax Implications
For start-ups seeking to raise capital to start or grow a business, crowdfunding can be a great option. We know crowdfunding works for causes – the ALS used this platform to raise $112 million in a six-week period through its famous Ice Bucket Challenge. That same wildly successful concept is funding the seed money for some of the biggest ideas by today’s entrepreneurs. In St. Louis, a 2014 Kickstarter crowdfunding campaign resulted in nearly $650,000 for a local entrepreneur. However, when individuals or companies raise money this way, some are forgetting that with the money raised comes tax consequences.
Start Up Funding – Crowdfunding
Raising money by using one of the many web-based crowdfunding platforms can be faster and easier than more traditional ways of finding investors – or maxing out all your credit cards. But, the money raised by for-profit individuals and entities can be subject to federal and state income tax.
The entrepreneur featured in this article is just one example of how a lack of understanding of the tax laws combined with poor timing on the rollout can take many of the advantages out of this great new capital-raising resource. Good old-fashioned tax advice for even the most forward-thinking start-up is still advisable. If you want to know more about how to make the most of crowdfunding and satisfy your tax responsibilities at the same time, see an Anders tax advisor that specializes in serving Start-ups.