EXCLUSIVE: TRUMP Act Proposes Tax Credit For Crowdfunding Support For Small Businesses — What It Means, Why It's Important

A push to grow crowdfunding with a tax break for U.S. backers of companies could help boost jobs and the economy, according to supporters of the effort.

TRUMP Jobs Act: The TRUMP (Targeting Resources To Unleash Market Prosperity) Jobs Act is the push to add to the JOBS (Jumpstart Our Business Startups) Act passed in 2012 and went into effect in 2016, making crowdfunding possible for non-accredited investors.

"This is really being driven and advocated by a broad coalition of individuals, companies, intermediaries, lawyers. Really, the ecosystem of entities that operate in the space of investment crowdfunding," Crowdfunding Professional Association co-chair Brian Christie told Benzinga in an interview.

The new proposed piece of legislation would give investors who make crowdfunding transactions a chance to get a 50% tax credit on their investments, up to a max of $1,000 for an individual and $2,000 for a married couple.

The tax credit would reward investors in crowdfunding, which Christie said is significantly different than donations crowdfunding (GoFundMe) and rewards crowdfunding (Kickstarter, Indiegogo).

"No one actually gets any equity or any securities out of those types of transactions. And many of those transactions result in nothing for the investor," Christie said.

The new policy could create or sustain over one million new jobs and support $120 billion in economic growth for 30,000 American businesses each year, according to data from the Coalition for Crowdfunding American Jobs and Prosperity.

Read Also: What is the JOBS Act? Everything to Know

Benefits of TRUMP Jobs Act: While crowdfunding has been happening for years, the JOBS Act helped expand who qualified to make investments and the ways people could raise money, Invown CEO and co-founder Levi Brackman told Benzinga in an interview.

Brackman said it's important to offer more incentives for people to invest in regulation crowdfunding efforts.

"The reason why this kind of $5 million a year is so important is because if you're a small company, you're basically not going to raise more than $5 million a year," Brackman said of the $5 million annual crowdfunding limit.

Brackman said this allows smaller companies to go directly to the public and raise money.

"It enables small companies to raise money or to, you know, to capital formation for small companies from anybody."

The growth of the JOBS Act with the TRUMP Jobs Act could further incentivize this type of investing in small businesses, Brackman said.

Christie said the two key things for crowdfunding are it allows small businesses to do general solicitation that would otherwise be illegal and allows non-accredited investors, who represent 90% of the population, to invest in businesses.

Regulated crowdfunding helps American businesses, which could prove to be an important step in President Trump's America-fist movement.

"As it relates to the America First Agenda, there's very much alliance with what's been stated," Christie said.

Christie said the tax credits would also be a wealth-building opportunity for everyone.

Brackman said Trump highlighting billion-dollar investments in America will get the headlines, but something like the crowdfunding efforts should get attention as it can help power and drive the economy.

"You can just imagine the kinds of new businesses are going to be started because everyone knows that tax time, they look back and they say, have I done my crowdfunding investment?" Brackman added.

Another important item shared by Christie and Brackman during the interview is the lower failure rates of crowdfunded businesses, which sit at around 10%, lower than overall small businesses at 50% and VC-backed businesses at around 75%.

"Part of the reason these businesses are more resilient is that oftentimes they're getting money from their customers who become more loyal, and they'll spend more money with the company that they have ownership in from day one, from early on," Christie said.  

What's Next: The Tax Cuts and Jobs Act (TCJA) was signed into law by President Donald Trump in 2018. The TCJA expires in 2025 unless it is extended by Congress.

"The folks in the Hill have to either modify it or extend it. It has to be done, otherwise all that expires," Christie said.

Christie told Benzinga the House of Representatives has passed a version and is waiting to see if the Senate will pass a similar version.

"So, something is going to get done on a tax code this year. Because of that, there's an opportunity for us to have what we're doing be a part of that."

Christie said there is support from both the Republican and Democratic parties for crowdfunding, which could help get tax credits like this passed.

"So there's a very strong bipartisan support for crowdfunding. And we believe that people will show interest in this because of that foundational strong support."

The tax credit bill needs a Republican sponsor to bring it forward, which is one of the biggest next steps for the advocating groups.

"Our job of trying to connect the dots so they understand how important this is and to get the increase in broad awareness and then to get some actual sponsors to say that they're going to lead this," Christie said.

Read Next:

• What is Equity Crowdfunding? A Complete Guide

Illustration by Visual Colony via Shutterstock