The Complexities Of Crowdfunding: What Does It Mean For Kickstarter, IndieGoGo?

Crowdfunding platforms like Kickstarter and IndieGoGo have made it easier than ever before to raise money online, but some are concerned these companies lack regulation and clarity. These sites help fund a wide variety of projects, helping people with big ideas get in touch with potential investors.

Perry Chen, CEO of Kickstarter, addresses delegates during the annual meeting of the World Economic Forum in Davos, Switzerland. Reuters

The question is: Should pledges by investors be treated as gifts or as standard taxable income? The IRS and the SEC have been slow to clarify and propose crowdfunding regulations.

In the meantime, Kickstarter advises aspiring projects to seek the advice of a tax accountant.

Crowdfunding can be based on either rewards or equity.

Equity-based crowdfunding, where investors receive equity in return for micro-investments, has even less policy clarity than the taxation of rewards-based crowdfunding.