IRS Tax and Securities implications of Go Fund Me
Note: This article only pertains to business start-ups and indivduals, NOT Charitable causes.
As kids, we all had a crazy idea or legitimate need that required money right away. We would work a summer job, collect bottles, try to sell a sibling, or do chores around the house for that extra money.
In 2016, we have a new system called Go Fund Me that asks people to make credit card payments online for whatever new idea that one may have.
Here’s the Tax problem: Proceeds received from Go Fund Me are taxable to the last dollar! An individual person is not set up as a 501c3 vehicle where you fall into a category that is a not-for-profit entity. By collecting money from random people, the IRS sees this as the most basic form of income – any accession to wealth, unless, you can find an exception. In this case there is no exception. One may think that the gift exclusion will apply, however, it most likely the IRS will not consider it to be a gift. If you have loads of income being deposited in your bank account amounting to anything over $10,000.00, the bank will file form 8330 reporting this sum of money. Deposits made in amounts less than $10,000.00, but add up to $10,000.00, are considered structured transactions and form 8330 will apply.
You will have to report the proceeds as income on your 1040 individual income tax return and pay both Federal and State income tax (if your state has an income tax).
Here’s the securities problem: If you are giving your investors a share in your business, then, you have to register your company with the SEC. If you are investing that money into another organization, then, you are acting as a Broker/Dealer. Now, you need a Series 7 license.
Before getting all of that free money on Go Fund Me for your new business start-up, think through your financial and legal obligations. Both tax and securities violations come with heavy penalties and possible jail time. Nothing comes for free.
IRS Tax and Securities implications of Go Fund Me
