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The Future of Crowdfunding (and the Tax Implications)

Photo of Paula Bernstein By Paula Bernstein | Indiewire September 19, 2013 at 1:10PM

A panel during IFP Film Week talked about crowdfunding and its tax implications.
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jobs act

"Crowdfunding works," said Keri Putnam, executive director, Sundance Institute during the Artist Services Workshop presented by Sundance Institute yesterday at IFP Film Week.

She's right -- to a point. Certainly, we've all heard the crowdfunding success stories, but the following panel, "Soft Money, Uncle Sam, Equity and Crowdfunding," focused on some of the challenges of crowdfunding -- and the changes that will come next Monday, September 23rd when the JOBs Act could usher in a new era of equity crowdfunding.

Thanks to the JOBs Act, filmmakers will be allowed to raise up to $1 million in equity investments by soliciting to the general public. In the past, there was a restriction against public solicitation. Still, crowdfunding investments will only be open to accredited investors and the tax implications are very, very complicated.

Regardless of the JOBs Act, there are already tax complications to crowdfunding, as Cameron Keng, founder, AutoTax.me, pointed out. 

READ MORE: Indiewire's Ultimate Guide to Crowdfunding for Filmmakers

"The problem with Kickstarter and most platforms is that there's a lot of confusion with the language. They use the word 'donation,' but it's not a donation. It's income. The IRS has a simple rule -- unless you prove it's not income, it's income. What it comes down to people have to understand if you get a donation, that's income and you're going to pay tax on it," said Keng.

Along with the new rules regarding crowdfunding, there will likely also be new regulations -- and increased competition.

"When this becomes extremely popular, you're going to be competing with the Disney organization," said Robert S. Fingerman, CPA and president, Independent Films Production Consultants. "I think that's going to happen and it would be disastrous."

There's no doubt that the crowdfunding world will become even more competitive and cluttered after restrictions are lifted.

"Come September 23rd, the world has opened up," said Colin Brown, editorial director, Slated. "There are 8.7 million accredited investors in this country. You're going to be chasing that potential investor in competition with other investment ideas."

Brown said he is concerned about "crowdfunding fatigue," and pointed out that there are 9,000 websites that are registered with the word crowdfunding in them. 

Even if there are investors out there who might be interested in your film, how do you find them?

"The opportunity for there to be investments made through crowdfunding is amazing, but not if the investors don't know how to find you," said Dianne Debicella, senior program director, fiscal sponsorship, Fractured Atlas.

On the upside, now that budgets have gone down, "the barriers for entry for film financiers have really gone down. You don't have to pay as much to play," said Mynette Louie, producer and president, Gamechanger Films.

This article is related to: Filmmaker Toolkit: Crowdfunding, Crowdfunding, Crowd Funding, IFP, Independent Film Week







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