Crowdfunding and Taxes

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.

Nebraska Sales and Use Tax Exemption for Agricultural Repair and Replacement Parts

As the crop season gets underway, now is a good time to remind everyone of that the Nebraska, effective October 1, 2014, exempts sales and use tax when purchasing agricultural repair and/or replacement parts.

Per the Nebraska Department of Revenue’s Sales Tax Exemption Chart, (and based upon this Department of Revenue regulation) any repair or replacement parts for agricultural machinery and equipment used in commercial agriculture is exempt from sales and use tax.  Form 13 is required when using the exemption; specifically, you must fill out Section B of Form 13 and indicate that the exemption is for commercial agriculture.

The exemption for repair and replacement parts is separate from the Nebraska Personal Property Tax Exemption for beginning farmers.  The Personal Property Tax Exemption requires an application to the Nebraska Department of Agriculture, as well as supporting documentation.  The exemption for repair and replacement parts does not require such steps.

If you have any questions, please feel free to contact us!  We’re always here to help.