Indiegogo is arguably the shining star of online crowdfunding. Unlike Kickstarter, it has unlimited parameters concerning what one can raise money for. Everyone from individuals, caretakers, parents of ill children to business ventures and startup companies have used this crowdfunding platform to raise millions of dollars to meet their goals and finance their dreams.
If the idea of putting up a profile, people giving you money and you living happily ever after sounds pretty idyllic—like winning the lotto—well, it is. However, the reality is not so simple.
We here at Banksloveme.com like to go behind the curtain of financial matters and reveal what really is going on. We believe you can’t win if you don’t know the rules of the game, so today we will explain 4 things Indiegogo winners don’t tell you about fundraising:
#1: Taxes. Indiegogo will be sending you an electronic 1099 at the end of the year. Know that they’re going to file this 1099 FOR YOU with the donation amount already on it. They’re waving their little white flag to the IRS with hands up as if to say, “Hey, no matter what this guy/girl says, we’re clean.”
#2: Getting’ paid. Your payment flow is based upon how your donors pay. If they pay through Paypal, then it goes directly into your Paypal account and you can transfer it into your bank account from there. (Typically it takes about 3 business days for money to transfer from Paypal to your bank). If donors pay through credit card or electronic check, the time it takes to get to you will take longer. You’ll get an email that says ‘verification’ or ‘confirmation of your payment’.
But if you’re using Paypal there’s a catch:
Indiegogo requires you to set up a business Paypal account.
…Wait a minute: I can’t just use my regular paypal account?
No. Here’s why:
#3: Red Flags. If over $10,000 is dropped into your BUSINESS PAYPAL account, it triggers a red flag and is immediately frozen. (Paypal tells you $20,000 is the red flag amount in the fine print on their website but they actually send you an email when it’s $10,000.) This is because business accounts have tax regulations.
So if $10,000 or more passes through, your Paypal business account is frozen until Paypal verifies the details. This can be a quick fix or a long, drawn-out pain in the neck. Expect an email message containing an electronic 1099 and you have to fill it out right then and right there-that is, if you want your money.
A 1099 is a general tax form for miscellaneous income—including gift tax, donations, and the like. This is a form you want to pay attention to in order to see how much tax you’ll have to pay. The 1099 form Indiegogo is going to mail you will already be filled out. Why: They’re covering their butts with the IRS by sending them this snitch form, intercepting your tax attorney, letting them know what you’ve got before you can tell them what you’ve got.
A little history: During the early days in places like Miami and Las Vegas, the banking business was built on mob money. That meant huge sums of money (from criminal activity) were being funneled through these institutions, eventually causing a spotlight to be shined on large “suspicious” bank transactions by regulatory agencies.
Which leaves us where we are today. Here comes 9/11 and computer algorithms designed to track not only large amounts of money, but “any unusual activity”—which is vague by any stretch of the imagination- and is left dangerously at the whims of subjective interpretations.
Now, “large” no longer means $10,000. It means any noticeable change in activity. Let’s say your regular weekly deposits are $500 and you deposit $10,000 all at one time, causing algorithm eyebrows to go up.
These three previous factors lead us to:
#4: Plan accordingly. Keep in mind when you’re deciding on your goal fundraising amount the other variables involved. For example, if you need $30,000 for your campaign, then factor in the tax that will be deducted plus the percentage Indiegogo takes out (we believe it’s currently 9% for flexible and 4% for fixed fundraisers). This way, you’ll walk away with the amount you actually need.
So now you know a little bit more about what raising funds on Indiegogo is really like. It’s still a good road to take (if you determine it’s right for your situation for you).
…Just remember that it’s not “free money”.