Crowdfunding is the process of asking members of the general public for small amounts of money through any one of hundreds of crowdfunding websites.

Crowdfunding is used by both individuals and businesses, and the amount raised is substantial: over $17 billion is generated yearly through crowdfunding in North America.1

Is this money taxable? Though it may seem strange given the amount of crowdfunding going on, there has yet to be a court decision or IRS ruling on the subject. The IRS has issued only two brief information letters. The gist of the information letters is that “the IRS will examine all facts and circumstances . . . and use general principles of income inclusion to determine the proper tax treatment.”2

Under these general principles, gross income includes “all income from whatever source derived,” except where otherwise provided by law.3 Thus, money obtained through crowdfunding is taxable income to the recipient unless there is a specific exception.

Not all crowdfunding is the same. There are four main types:

Donation-based

Rewards-based

Equity-based

Debt-based

Let’s look at each and apply ... Log in to view full article.