Having a successful crowdfunding campaign is a dream come true for many businesses. It is an easy way to raise the funds that are needed to accomplish a specific funding need. Many campaigns today offer rewards that are tangible in return for an investment, but is that something your campaign should offer?
For many businesses, it is something that should be avoided for tax purposes. If you don’t take measures to prevent the full hit to your income for your crowdfunding tax responsibilities, then there is a very real possibility that you’ll lose up to 40% of the funding you raised just to taxes. That’s because any tangible item requires you to file taxes as a sales vendor under current tax codes.
Instead of t-shirts, coffee mugs, and keychains that all require production and shipping costs that will rob you of the income you need, think about using rewards that aren’t tangible instead. By doing so, you’ll avoid the taxation problems and be able to focus more cash to where it is needed most.
What Is an Intangible Reward?
The best intangible rewards are those that give a backer a sense of accomplishment and a future hope for something great without you needing to provide some sort of product in return. A classic example of this would be to ask for funding for a movie. You’d give people a synopsis of the plot and what you hope to accomplish with the film. You could offer people a public thank you on social media, include their name in the credits, or even give them a listing as an executive producer.
The only cost you have is in the time it takes to type up a thank you note or includes a name in a list of credits – assuming you don’t have an intern to do that for you that is. The backer feels special because they’ve been included in the project and will probably see the film or even buy it so they can show off their name.
Taxes Aren’t the Only Costs To Consider Either
Crowdfunding has more costs to it than just taxation. The primary cost of any crowdfunding campaign is the percentage of the cut that the platform is going to take from the amount that has been raised. Many platforms have a 10% commission, but some may go up to 20% depending on the circumstances of your campaign, the type of campaign, and how much money you’re trying to raise.
You can’t forget about the cost that is associated with your time either. If you feel like your time is valued at $20 per hour and you have put in 100 hours of work creating videos, content, and a social media presence to make it successful, then you’ve got an extra $2,000 of cost in that campaign that will work against your bottom line.
There’s also the PR costs that a campaign needs to get noticed. Although going viral is the best case scenario, you can’t just plan for this to happen. You must instead plan for advertising costs, video and internet marketing, and even revenues that aren’t fulfilled because credit cards are denied or even just entered incorrectly. Make sure you’re not paying a commission on a pledge.
With some advanced planning, you can create a series of high quality intangible rewards that will help you maximize your next crowdfunding campaign. Do that and you’ll be able to use more of the money you’ve worked so hard to get.
Strong proponent of individual liberty and free speech. My goal is to present information that expands our awareness of crucial issues and exposes the manufactured illusion of freedom that we are sold in America. Question everything because nothing is what it seems.