What you need to know about Crowdfunding

Transcription

1 What you need to know about Crowdfunding CCIA Spring 2018 Conference Heather McGee Decauwer Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC registered investment advisor. Purpose of Today s Training 2 1

2 Objectives What is crowdfunding? Who uses crowdfunding? Survey Why to people contribute? Crowdfunding terminology Is it tax deductible? Other concerns Internal controls Districts could consider 3 What is crowdfunding? Crowdfunding is the practice of raising small amounts of money from a large number of people, typically online. Instead of relying on buy in from a very small pool of wealthy donors or institutions, successful crowdfunders harness the power of many. 4 2

3 What is crowdfunding? In today s digital world, there are almost too many crowdfunding platforms to count, and the market for the crowdfunding in developing countries alone is expected to top $96 billion annually by Who uses crowdfunding? Non profits, charities and social enterprises looking for funding for a social cause project, product or program Individuals looking for funding for a sick friend, family member, or colleague Individuals and organizations looking to fund animal vet bills Individuals or teams doing a challenge and raising funds for a charity or non profit 6 3

4 Who uses crowdfunding? 7 8 4

5 Survey Text CLACONNECT to Respond with A, B, or C 9 Survey Statement Agree % Neutral % Disagree % Crowdfunding is a legitimate way for the Foundation to acquire new donors and raise money. Crowdfunding is a legitimate way for Departments to raise money. Crowdfunding is a legitimate way for Student Clubs and Activities to raise money. The organizations on campus raising money via crowdfunding sites really need the money. The organizations on campus raising money via crowdfunding sites are usually honest people. The "crowd" does an effective job of preventing fraud and abuse on crowdfunding sites. The District does an effective job of preventing fraud and abuse on crowdfunding sites. 10 5

6 Survey An informal survey of 192 people* Statement Agree % Neutral % Disagree % Average Score** Crowdfunding is a legitimate way for entrepreneurs and other creatives to finance their work Crowdfunding is a legitimate way for people in need to get help, especially when they lack insurance Crowdfunding is a legitimate way for nonprofits to acquire new donors and raise more money Crowdfunding is fun for the person raising money Crowdfunding is fun for the backer or donor Crowdfunding is hard work Crowdfunding usually works People raising money via crowdfunding sites really need the money People raising money via crowdfunding sites are usually honest people The "crowd" does an effective job of preventing fraud and abuse on crowdfunding sites *Forbes Magazine Worries About Fraud Top List Of Crowdfunding Concerns, November 2017 **The average score is a simple average of the agree, neutral and disagree responses assigning the values 1, 2 and 3 respectively 11 Crowdfunding Terminology Beneficiary individual or organization campaign is set up for Campaign / Project the purpose funds are being raised for Donor / Backer / Funder the crowd Organizer individual or organization that is running the campaign Platform crowdfunding site used All or nothing (AON) This means that if the amount requested is not reached, the project does not get funded. The donor then has the option to pick another project to fund or give the organizer a credit toward their next project. Keep it all (KIA) This means that if any amount is reached, the organizer will get a check even if the goal is not reached. 12 6

7 Why do people contribute While all campaigns and donors are unique, people generally contribute to campaigns for four main reasons: Participation: They want to be part of something bigger than themselves. People: They care about and believe in the people running the campaign and want to support them. Purpose: They believe in the campaign s goals and want to help move those goals forward. Perk: They want a reward in exchange for their contribution. 13 Tax deductibility Charitable deductions It s important to remember that no matter how charitable the intentions of crowdfunding campaigns may be, contributions for individuals or organizations that aren t qualified charitable organizations, such as 501(c)(3) entities, will not qualify as deductible charitable contributions, regardless of the circumstances. Taxpayers can deduct charitable contributions only when they re made to qualified charitable organizations that are not intended to benefit specific/named individuals. 14 7

8 Tax deductibility The gift tax limit A contribution to an individual s crowdfunding campaign that s a gift and doesn t qualify for a charitable deduction may be subject to gift tax rules if it s more than $14,000, which is the annual gift tax exclusion limit per individual. If a backer gifts more than that amount to an individual in a given year, the backer may have to file a gift tax return. 15 Other Concerns Scams For every good A 110 year old World War II veteran in Texas was able to remain in his home last year after his family raised nearly $200,000 online to pay for his nursing care. A Harvard bound teen in Compton, Calif. Put out a digital call for help and received $21,000 for textbooks and other expenses so that he could afford to attend an Ivy League school. In Detroit, residents raised more than $2,200 for a 74 year old peanut vendor whose motorized bicycle, which he used to push his cart, was stolen. There is a bad In January 2016 when the 37 year old Alabama woman claimed she had terminal cancer and created a GoFundMe page for a final Disney vacation. She pocketed more than $10,000 before it was discovered she didn t have cancer. A cat named Bart died; then five days later it came back to life, crawling from its grave. It needed expensive veterinary treatment, so the owners neighbors set up a GoFundMe campaign to help pay the bills. Stories of Bart the zombie cat were gaining traction. The campaign started receiving thousands of dollars. But The Humane Society was paying the bills the whole time. An investigation also revealed that the cat wasn t a zombie (duh) it had been buried alive. 16 8

9 Other Concerns Scams GoFraudMe.com, a website dedicated to documenting and exposing fraud and misuse on GoFundMe. Guarantees Some platforms offer guarantees for: Donors if the campaign funds are misused, the donor is eligible for a refund. Beneficiaries if the organizer fails to deliver any of the funds. But be sure to read the fine print. The GoFundMe Guarantee applies to any individual beneficiary (not organizations) to a Covered Campaign. 17 Other Concerns Out of State Fundraising If a charitable organization conducts activities or fundraising in other states, the organization should confirm what registration or reporting requirements may be necessary in those states. For more state specific information, visit the National Association of State Charity Officials Resources website. 18 9

10 Other Concerns Fees The platforms make their money off of fees. Fees vary and could be contingent upon goal achieved and not achieved. 19 Other Concerns Usage Anything on a crowdfunding platform with the college s name is a representation of the college. In the absence of a policy Crowdfunding is a fundraising initiative that can be launched without approval or knowledge of the district, yet the donors expectations regarding how that money will be used flow toward the district. Districts have lots of responsibility but very little control

11 Internal Controls Districts Should Consider Policies Establish where charitable gifts and fundraisers are to be given Identify an authorized crowdfunding vendor Why? Monitoring procedures are in place Funds are secured Donor information can be added to database Research for fees and guarantees is already done Use of proper branding of campaign is established 21 Contact Information Heather McGee Decauwer (626)