On April 1st, 2013, Kickstarter released a “tax guide” for project creators that will lead thousands of creatives to fall under IRS tax audits as well as their contributors. The tax guide started with the best intentions, but the execution is beyond wrong. This is a WARNING to all Kickstarter creators and contributors to be very wary of taking any advice they provided.
Dissecting Kickstarter’s Tax Guide
Everything is Income
It’s unfortunate the Kickstarter’s tax guide didn’t end their tax advice at the first sentence. “In general, funds raised on Kickstarter are considered income.” This is the beginning and end of the tax guide. After this sentence is where the “stuff hits the fan.”
Kickstarter Campaigns Are NOT Businesses
In general, a creator can offset the income from their Kickstarter project with deductible expenses that are related to the project and accounted for in the same tax year. For example, if a creator receives $1,000 in funding and spends $1,000 on their project in the same tax year, then their expenses could fully offset their Kickstarter funding for federal income tax purposes.
This is not true.