The methods companies and individuals can use to raise funds has changed dramatically in the age of the Internet. Pioneered by films and startups, crowdfunding has become an attractive option to pitch an idea and have access to more potential “donors” than ever before. But what about the tax consequences? What portion, if any, of crowdfunding monies are considered income? If you’re crowdfunding, here’s what you need to know about the tax consequences.

Taxable Income vs. Nontaxable Gifts

In general, the IRS considers most income collected from crowdfounding campaigns as taxable income, if they are NOT:

  • - Gifts with nothing expected in return
  • - Loans with mandatory repayment
  • - Capital donated in exchange for equity interest in an entity


Exceptions are made when crowdfunding is given for purely charitable purposes, such as to raise money for a funeral or for hospital bills. In that case, the money is considered a non-taxable gift. Notice, this is a non-taxable gift and not a charitable deduction. A charitable deduction is only allowable if the monies are given to a qualified entity.

Including Constructive Receipts of Income

If you create a crowdfunding campaign where you give certain “rewards” based on specific thresholds of giving, most of the time that income is taxable. This is considered constructive receipt of income, which would apply to most income collected from startups and film projects via crowdfunding. The “reward”, from the IRS point of view, counts as a “quid pro quo” and therefore the money given to get that reward is taxable. When money is received, that is considered a constructive receipt, and subject to taxes.

In certain crowdfunding campaigns, money is only collected if a target goal is reached. If the fundraising goal is not met, none of the money is received. In those cases, none of the money is collected, and therefore not considered constructive income.

Tax Nexus in Different States

A tax nexus, in layman’s terms, means some kind of tax presence inside a state. In order for nexus to be established, the business collecting money in that state would have to pass a certain threshold. The thresholds vary from state to state, and should be checked when receiving funds in a crowdfunding campaign.

For example, if you were crowdfunding in California, but you received a significant amount of dollars from donors in New York, you might end up passing a threshold, establishing nexus, and therefore be subject to income taxes in New York.

Though nexus in the past usually meant a physical presence in the state, innovations with the Internet has meant the definition of nexus has had to evolve. Check with your tax professional about the rules from state to state.

Want to Know More About Crowfunding and Taxes?

We’ve just scratched the surface of the many tax issues surrounding crowdfunding campaigns. There are many additional issues, including accounting methods, whether the crowdfunding is considered part of a business or hobby, and the value of rewards given to backers. PDM’s tax experts can help advise you on the best course of action. Contact us; with our years of technical experience, advanced training, and cutting edge technology, we are your financial partner.