Keep Track of Crowdfunded Finances

by Sean Ross

0 min read

If you use crowdfunding to gather startup financing for your business, you must report the payments as business revenue on your tax return. (This rule doesn’t apply to nonprofits or charitable fundraisers, however.) Ideally, so you don’t overlook any payments, you should implement a tracking system such as noting the payments in your accounting software upon receipt.

If you offer gifts to your donors, you may write off the related costs as business expenses. For example, if you receive $10,000 from crowdfunding but spend $1,000 on thank-you gifts, you should only report $9,000 in income.

If you want to use crowdfunding as startup financing, consider using equity crowdfunding. In this case, you don’t have to report the funds as income – they are classified as capital, and your shareholders pay tax later on dividends and distributions.

References & Resources

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