The Pros and Cons of Mixing Crowdfunding and Fiscal Sponsorship

Fiscal sponsorship can be an incredibly powerful tool in your fundraising toolbox… and can also be a huge waste of time and hard-won funds. Whether fiscal sponsorship is right for you and your project depends a lot, so let’s talk about it!

Obligatory starting point: this blog post is not legal or tax advice. I strongly recommend consulting tax and legal professionals before working with a fiscal sponsor. What follows is simply a walkthrough of why you may or may not want to consider it for your own projects.

What is a fiscal sponsor?

A fiscal sponsor is a non profit organization that offers their tax exempt status to creators as a service. A project that is using a fiscal sponsor will have all their funds from their crowdfunding campaign (many of the platforms allow fiscal sponsors, though you’ll want to do your homework to see what up-front work will be required to onboard them) directly transferred to the sponsoring organization, which then issues tax exempt receipts to supporters. Funds are transferred to creators from the fiscal sponsor organization minus their fee for their services, a process which your crowdfunding platform has no control or jurisdiction over.

You may also fundraise directly with your fiscal sponsor (and some require this, rather than you doing the raising on a third party platform like Kickstarter or Seed&Spark) using a page of their design/on their website.

Fiscal Sponsor Pro: All pledges to your campaign can be tax deductible

Caveat: can. If you aren’t raising funds directly through your fiscal sponsor, instead linking them to your Kickstarter or other crowdfunding platform (which I generally recommend, but that’s another blog), then they may only offer tax exempt receipts to supporters pledging above a certain dollar amount.

Aside from that, though, this can be a valuable promotion tactic when talking to potential supporters; not only are they helping bring an exciting project to life that they’ll get to enjoy when it’s complete, but the contribution they make can be written off on their taxes!

Fiscal Sponsor Con: most people don’t care about deducting the average pledge (less than $100) on their taxes

The most commonly contributed crowdfunding pledge is around $25, and the average pledge is about $100. Most people aren’t going to deduct that from their taxes, even if they have all the paperwork in place, because for most people, it won’t make a statistically significant difference.

According to the Tax Policy Center, “high-income taxpayers are much more likely to itemize than others…In tax year 2020, 10 percent of taxpayers chose to itemize.” The grand majority of your supporters are likely not in a tax bracket to even bother deducting in the first place (and if they are… you probably don’t need my advice to crowdfund), so as a promotional tactic, fiscal sponsorship probably won’t be a major factor in people supporting or not.

Fiscal Sponsor Pro: can entice bigger fish to contribute

That being said, if you have a couple of bigger fish on the line, fiscal sponsorship starts to look a lot more appealing. It could be the difference between a modest contribution and a massive one, and could even be the difference between a contribution and nothing at all. Do you have a friend or family member who’s in a high-paying profession, like a medical providor or engineer? Pitching them a fiscally sponsor donation is likely to be more persuasive.

I want to be clear: the fact of having a fiscal sponsor does not mean high-value donors will appear out of the woodwork. But if you already have people who seem interested in the project or you as an artist in a higher tax bracket, then fiscal sponsorship can ease those conversations even further.

Fiscal Sponsor Con: most fiscal sponsors take a additional fee, in addition to whatever fee your platform takes

People frequently forget about fees, and it can make a massive dent in your final budget if you aren’t paying attention. If you’re linking your fiscal sponsor to a traditional crowdfunding platform like a Kickstarter or Seed&Spark, you may end up having two separate entities (the platform and the fiscal sponsor) taking a cut of your final earnings before your payout hits your account.

Even just fundraising directly through your fiscal sponsor will likely incur a fee of some kind, so make sure you do the math in advance and ensure you’re budgeting for that loss, rather than being surprised by it when you start paying collaborators and vendors.

Fiscal Sponsor Pro: tax shields and using international platforms without citizenship

Reminder that this is not tax advice! However, a big reason I know filmmakers (particularly filmmakers looking to raise over $25k) engage with fiscal sponsors is because crowfunding payouts are counted as income, which means if the money goes to your account directly, you’ll be taxed on it. But if you use a fiscal sponsor, since it’s their account that the money hits first, they can act as your tax shield. They’ll get taxed, and you’ll get… not not taxed, but taxed more favorably. Please talk to an accountant.

Separately, I didn’t want this blog post to be too unbalanced in terms of pro/cons from a structural point of view, so I’ve included this other small logistical pro in this section: engaging a fiscal sponsor can be a workaround for citizenship requirements. Back when I worked at Seed&Spark, something that came up a lot was filmmakers from, in particular, the UK and Australia (but also plenty of other countries), wanting to use the platform. Unfortunately, you could only crowdfund on Seed&Spark if you had a US or Canadian bank account and social security number. When folks insisted on going through Seed&Spark, but didn’t have a teammate with the appropriate account, they’d engage a US or Canadian-based fiscal sponsor in their place.

Fiscal Sponsor Pro: can help you promote*

Depending on the nonprofit you’re fiscally sponsored by, there might be opportunities to collaborate on promotional efforts. Perhaps they’ll shout you out in their newsletter, or sponsor an event/panel with you, or even host a screening of the finished film. If you choose a sponsor with a thematic or subject matter alignment (a mental health nonprofit partnering with a film about mental health themes, an environmental charity partnering with a deforestation documentary, etc), this can be a mutually beneficial arrangement. They get content for events and visibility for their cause and organization, you get direct promotion to a preexisting community of people who care about the thing you’re making a film on.

Fiscal Sponsor Con: The majority of fiscal sponsors won’t promote on your behalf

However, most fiscal sponsors filmmakers end up working with do fiscal sponsorship for filmmakers fairly broadly, which means they’re about as useful as promotional partners as your crowdfunding platform. Who is the audience for Kickstarter? Other filmmakers and people seeking funding. So who, then, is the audience for a fiscal sponsor that primarily supports filmmakers? Again… other filmmakers in need of a fiscal sponsor. So even if your fiscal sponsor helps you spread the word (and that’s unlikely for a lot of the bigger ones; they just don’t have the capacity), it’s not going to move the needle much, and you’ll still primarily be relying on your own efforts to get the word out.

If a few of the other pros on this post work in your favor, great! But if you’re signing on with a fiscal sponsor because you hope it’ll take some of the marketing efforts out of your hands… fiscal sponsorship probably isn’t for you. It’s the same fallacy as signing on with a distributor because you hope they’ll market on your behalf, without looking into if that distributor does marketing beyond the first week of signing a new project on to their library.

Bri Castellini is an independent filmmaker, a romance author, and, regrettably, a podcaster. She’s known for the 2017 short film Ace and Anxious (writer/director, 160k+ views on YouTube) and for her podcasts Burn, Noticed and Breaking Out of Breaking In, covering the USA television show Burn Notice and practical filmmaking advice, respectively. She can lick her elbow (not clickbait). Full work history and ways to hire her as a consultant can be found on her website BriCastellini.com