Are gifts from Kickstarter taxable income or a donation?

April 18th, 2013 → 8:26 am @ // One Comment

Carol,

I have written a book on dolphins that I plan to sell as a self publisher this coming winter. I would like to use Kickstarter to help me with the initial editing/art/photography/printing costs, and plan to use all the money raised to support my grassroots political sea-environmental efforts. It may seem unlikely, but I believe that with the projects I’ll be outlining that I may tap into a large population willing to give donations as gifts, even though I’m not setting up a non-profit or anything.

Can you provide likely guidance?

Max

Max,

I’ll do my best to answer your questions, but I have to include this disclaimer:

The Internal Revenue Service hasn’t published specific guidance on the tax consequences of receiving money through crowd funding sites like Kickstarter.

I’ll also explain that I am a very conservative CPA. I do not take risky or unsupported positions. You may get a different answer from another CPA or tax professional.

 

Crowd funding income can be treated as the following:

  1. A donation to a 501c3 tax exempt charity.
  2. Investment in a business by an investor seeking a share of ownership (called equity owners)
  3. Gift given by an individual to an individual. Gifts are typical when no business or potential profit motive is evident. Examples of gifts include a wedding, funding an adoption, helping a family whose house was destroyed by fire or a person with a medical illness.
  4. Taxable income for a for-profit business. Most businesses give a reward in exchange for the income. This reward may be considered a sale of a good and subject to sales tax in your state (and you thought all you had to worry about was federal income tax!)

 

From what you explains #1 and #2 do not apply to you. It is my opinion that #3 Gift does not apply to your situation of funding your book project.

#4 taxable income is the only option that applies to your crowd funding campaign.

 

Here is my disclaimer:

Nothing contained in this email was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code, as amended; (2) any written statement contained on this website relating to any federal tax transaction or matter may not be used by any person to support the promotion or marketing or to recommend any federal tax transaction or matter; and (3) any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any federal tax transaction or matter contained in this website. No one, without our express written permission, may use any part of this website in promoting, marketing or recommending an arrangement relating to any federal tax matter to one or more taxpayers.


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One Comment → “Are gifts from Kickstarter taxable income or a donation?”

  1. […] “Business Tip #12 for Writers: Sales Tax”-When you sell books, you are responsible for paying the sales tax. Carol gives you a few tips on how to collect sales tax dollars at book events. I also recommend that you learn about the tax responsibilities for crowdfunded dollars in her posts “Using crowd funding to raise money for your book” and “Are gifts from Kickstarter taxable income or a donation?“ […]

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