As today is tax day, it seems somewhat appropriate to discuss taxes.  But I want to discuss a little-known tax issue that may become a big issue, either currently or in the future, for some of our readers.

Crowdfunding is a growing funding resource for many farmers and ranchers just starting out.  Crowdfunding is when a person or organization makes a pitch for funding on an Internet platform such as Kickstarter, Barnraiser, or many others (see a comprehensive list here).  The general idea is to have a lot of small donations from your “crowd” to fund a project.

But is there a potential downside?  Yes, from a tax perspective there could be.  According to this New York Times article, IRS rules require companies that process payments for crowdfunding sites to send a 1099-K form to any customer for whom they register 200 annual transactions totaling at least $20,000.

As the Times points out, this a tax issue that could be compounded by timing.  If the crowdfunding occurs in a year with little to no business expenses to offset the generated income, there could be a greater than anticipated tax bill due.

But there is also the state tax angle, more specifically, sales tax.  Sales tax varies state-to-state and, in some cases, situation to situation.  Generally speaking, however, sales tax is due for anything sold to an in-state buyer.  Sales tax is applicable regardless of the number of donors or amount raised.

In sum?  Crowdfunding may be a wonderful opportunity for your farm.  But be aware of the potential tax implications before jumping straight into a fundraiser.