Wednesday, May 29, 2019
Andrew M. Wasilick (J.D. 2019, North Carolina), Recent Development, The Tax Implications of Crowdfunding: From Income to Deductions, 97 N.C. L. Rev. 710 (2019):
Crowdfunding is becoming more prevalent in today’s world. Though there are several types of crowdfunding, rewards-based and donations-based crowdfunding raise the question of whether this money is subject to federal income taxation. For rewards-based crowdfunding, the money raised is likely subject to taxation, while money raised by donations-based crowdfunding is likely considered a gift not subject to federal taxation.
This then raises another question for donations-based crowdfunding: Is the subsequent contribution or expensing of that money allowed to be deducted, lowering the taxpayers’ tax liability? Strictly applying tax law and tax principles, all deductions should be allowed. If a reviewing court, however, feels this deduction would be an abuse of the Code, then there are tools available to deny the deduction. In the end, for money raised through donative crowdfunding, a taxpayer almost certainly will not have to claim income but may not be allowed to “double dip” and further lower his tax liability with a subsequent deduction.