24 Sep Are Kickstarter Donations Tax-deductible
Whether you’re a backer or a creator on Kickstarter, you must know about Kickstarter taxes to avoid any unpleasant surprises at the end of a Kickstarter campaign.
One of the most common questions we get asked from clients is, ‘Do I have to pay taxes on Kickstarter donations?’
The answer is a little complicated.
First, unless you’re a charity, then your Kickstarter campaign is for benefit. The money you’re receiving is therefore not “donations.”
It’s really pre-ordering or pre-buying which doesn’t make it ‘donations.’
This means that if you’re a creator, then the funds you raise on Kickstarter are tax-deductible. And if you’re a backer, you cannot claim a tax deduction for your contribution because it won’t be a charity.
In some special cases, especially in the US, people who donate to crowdfunding for charity purposes can claim tax deductions through crowdfunding platforms if your donation is to a certified charity, officially registered with, and recognized by, the government, and regulated by federal or state law.
In other words, it must be a 501(c)(3) organization. If that’s the case, a crowdfunding platform like Kickstarter will highlight this on the page with a badge. So in the US are Kickstarter donations taxable? Yes. Because Kickstarter is not a qualified (Sec. 501(3)(3)) charitable organization. You might find this more prevalent with charity crowdfunding organizations like GoFundMe getting tax-refundable donations. But let’s go back to talking about Kickstarter funds taxes for creators.
Are Kickstarter Donations Tax-Refundable for Creators?
If you’re based in the US, then funds raised from Kickstarter are considered income. To simplify, if you’re a creator who received $1,000 in funding and spends all $1,000 in the same tax year, then your expenses could fully offset your Kickstarter funding for federal income tax purposes.
If you receive the same amount of funding but spend it in a later year, expenses can still offset your Kickstarter funding using the accrual method of accounting.
Lastly, if your project crosses the threshold of $20,000 in gross volume per year, then you will be given a 1099-K form from Stripe, Kickstarter’s official payment partner.
In some cases, creators may be able to classify funds as a nontaxable gift and not income – however, this is seldom done and will need the consultation of a tax expert.
If you are based outside the US, then you’ll need to follow the tax rules of your respective country. For instance, if you are in the UK, then you will need to follow the HM Revenue & Customs. An incorporated company that has run a successful campaign will be subject to corporation tax on the income received after the deduction of any qualifying project expenditure.
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Are Kickstarter Funds Taxable?
Remember each country will have its own tax laws so before you start with the Kickstarter crowdfunding campaign, make sure you speak with a tax advisor who can guide you on taxable income from the Kickstarter campaign. Whether you’re a backer or a creator, you need to know exactly how your taxes will pan out before spending or receiving funds from Kickstarter.