How does Crowdfunding Work?

Sat, Dec 5, 2015

General Legal Issues

17121925920_f09ccf01fc_bCrowdfunding is all the rage now. Movies are made from it, causes are funded from it, ideas are created from it, and more. It’s becoming more and more common.

So, what does it mean? Crowdfunding is a form of financing, an alternative to traditional financing in the form of a loan or some sort of backing from a company or individual. This traditional type of backing comes with penalties, hitches, and requirements that some people don’t want. In addition, it doesn’t make sense for all types of deals that need to be financed.

Crowdfunding allows all kinds of people to contribute. It doesn’t always require a certain type or amount of donation and it includes people who wouldn’t ever have been considered before. A wide audience can be reached via the internet and it’s astounding how many people become involved.

Crowdfunding usually starts with an idea. Someone wants to get a product off the ground or an idea completed. They put up an entry on a crowdfunding website, set up a description, create a goal, show the way to donate, and then they see what happens. Once someone finds the cause or product or event, they can choose to donate their own money to see it happen or to be the first to receive the product. This is a great way for independent causes or products to be created and it doesn’t require Fortune 500 credit scores for loans, or backers with more money than they know what to do with. Crowdfunding puts the people in control.

There are various types of crowdfunding. Sometimes money is kept even if the goal is not reached and sometimes it is not. Make sure that you know how the crowdfunding site works and how the particular cause or product you are supporting is held accountable. It’s important to research what you are supporting for this and many other reasons.

Are crowdfunding donations tax deductible? That depends on the organization you are donating to. Of course, if you are donating money to get a movie made or a product made, it is probably not tax deductible unless the organization is. Make sure you do your research prior to crowdfunding if this is important to you.

Attorney Christopher D. Smith, Sr. is designated a Board Certified Consumer Bankruptcy Lawyer by the American Board of Certification.  SmithLaw is located in Lakewood Ranch, Florida.  Attorney Smith concentrates on bankruptcy, civil litigation, probate, estate planning, and elder exploitation cases in the Sarasota and Bradenton area.  Call 941-202-2222 to learn more.  SmithLaw offers free consultations in certain areas, including consumer bankruptcy, probate, and personal injury matters.

Image: Some rights reserved by free pictures of money

Comments are closed.