These days nearly everyone seems to have found a way to tap into the collective power of the crowd, a practice known as crowdsourcing. The idea behind crowdsourcing is that hundreds, even thousands of individuals can work together to solve a problem, complete a project, and generate new ideas. Crowdfunding — Kickstarter is a good example — is a growing trend among foreign investors, says Ann Irons, a Bellingham, Mass. CPA who prepares taxes for foreign investors in the US, shares the details.

How can foreign investors benefit from crowdfunding?

Many foreign investors lack the resources and access to pursue some of the more costly opportunities, especially large commercial real estate properties. Enter crowdfunding, which aligns various investors to capitalize on lower minimum investments as a group, giving them the ability to invest in these previously inaccessible opportunities. Realty Mogul is currently one of the most popular crowdfunding platforms, but several other options are available; the number of similar services is expected to increase.

How does choice of structure affect crowdfunding opportunities?

Crowdsourcing is innovative and effective, but it also requires a great deal of time and effort to coordinate collaboration among foreign investors for a single investment opportunity. However, it’s possible to make the process more efficient by pursuing crowdsourced funding as a corporation rather than as an individual, says Irons. Why incorporate?

• Reduce and streamline reporting requirements
• Reduce the amount of overall taxes paid on income
• May reduce annual fees
• May reduce taxes on gifts and inheritances

Some advantages apply only in certain states:

• Greater privacy for corporations
• Owners do not always need to go on public record
• Legal liability does not apply to owners, only to the entity itself

Although a corporation is the most popular structure among foreign investors, crowdfunding is also an option for those who form a limited liability company, or LLC. Ann cautions that obtaining a tax ID for an LLC is more time-consuming, and the company must also be taxed as if it was a corporation.

Why should foreign investors work with a CPA?

New investors are strongly encouraged to enlist professional tax and accounting services, preferably one who has experience working closely with international taxes. Even seasoned investors benefit from these services, given the complexity of the tax reporting process. A CPA can provide invaluable assistance by:

• Helping choose which structure — individual, corporation, LLC — works best
• Applying for an international tax ID number
• Selecting a bank in the US
• Preparing and filing taxes
• Ensuring compliance with financial reporting requirements

Questions about foreign investments in the US? To learn more about international taxes, or to schedule an appointment with Ann Irons, CPA, LLC, contact us at (508) 966-0700. We welcome individuals, businesses, and law practices in Bellingham, MA, as well as the surrounding areas of Woonsocket, Worcester, Medway, and Milford.