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Kicktaxing: The Crazy Complexity of Paying Tax Correctly On Crowdfunding 128

Posted by Unknown Lamer
from the irs-ruins-everything dept.
eggboard writes "I thought I knew what I was doing when I budgeted for a Kickstarter campaign. I spent weeks sorting out details, set a number ($48,000) that included expenses, Kickstarter fees, and a margin of error. In the end, we raised over $56,000. But my tax planning nearly put a crimp in cash flow, and could have been real problem. It all worked out, but I've written a detailed guide for people for before and after a campaign to avoid my mistakes."
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Kicktaxing: The Crazy Complexity of Paying Tax Correctly On Crowdfunding

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  • Re:Medium (Score:5, Informative)

    by eggboard (315140) on Monday February 17, 2014 @08:43PM (#46272061) Homepage

    It's difficult to claim "clickbait" when there are no ads!

    I wrote the article in this link, and edit a publication called The Magazine. Medium pays us to write new content and post archived material from our publication to their site while they learn about what people read. They're looking at a lot of data (which anyone who uses the site, even as a blog platform, can see in the stats page) to figure out whether people read entire articles, etc.

    I wrote 4,000 words from months of dealing with tax and business issues related to Kickstarter. I didn't realize that would be considered *thrilling clickbait headlines*. Instead, I though Slashdot readers, among others, would be a likely audience working in and around crowdfunding, and might like to get some information before launching one about the tax and accounting side of things.

    The "multiuser blog" is a collection of related articles, some of them run by publications like mine.

  • Re:Context (Score:4, Informative)

    by eggboard (315140) on Monday February 17, 2014 @09:01PM (#46272199) Homepage

    I completely understand that! But it's difficult to say "clickbait" if you haven't visited the site.

    Medium is no panacea, and this is a period when they're spending money to figure stuff out before they plug in a revenue pipe (see public statements by Ev Williams). However, you're seeing a ton of links to Medium because it's got a great front-end for writing and publishing. I've been working with Web-based content-management systems (CMSes) and sadly wrote a few myself for nearly 18 years, since the first formal ones arose. And Medium is pretty fantastic for writers and publishers.

    I think it's very good for readers, because it doesn't have cruft. It's words, no ads, photos/video well presented. So people have raced to write there if they don't want to use blogging software because it's just the story.

    Yes, there are a lot of SEO marketing types writing stuff at Medium. But there's a lot of good work (not tooting my own horn as I'm about 0.001% of the content of Medium) that's there, too.

  • by TheGavster (774657) on Monday February 17, 2014 @09:37PM (#46272471) Homepage

    I read the article, and he brings up some interesting points that even a business owner might find interesting about crowdfunding. Because your revenues are exponentially larger for a single quarter, your tax situation gets all screwed up and you have to be very careful on your estimated taxes. He also brings up some timing advice: since businesses are allowed to deduct the costs of doing business, you don't want kickstarter to cut your check on December 31st.

    It's really the opposite of most business tax situations. Rather than paying for material, wages, and capital expenditure and then waiting for invoices to come back, you're given a huge amount of revenue and then have to try and get it off the books as fast as possible.

  • by TheGavster (774657) on Monday February 17, 2014 @09:38PM (#46272485) Homepage

    He mentions that you can set up a fiscal year which deviates from the calendar year. He was unable to do this because he was already operating under an LLC and changing your fiscal year after you've set it is non-trivial.

  • by Overzeetop (214511) on Monday February 17, 2014 @10:29PM (#46272805) Journal

    I read the article as well. I also happen to run a business I started ten years ago from scratch. I'm not a business person, and even I knew that taxes mattered. This really is business 101. There are all types of businesses, and 2 hours with an accountant prior to starting any business, much less one in which you know is going to see 5-6 figures of cash flow in a very short period of time, is the first thing you should do. Mine gave me insight into basically everything in the article.

    Yeah, I was an asshole about it in my gp post. I'm an asshole about a lot of things - you need look no further than my sig for proof. ;-)

  • by eggboard (315140) on Monday February 17, 2014 @11:24PM (#46273109) Homepage

    Absolutely correct in one regard, but some very large business also run on cash if don't make stuff that's inventoried.

    I did research it (and mention it in the article) and discuss it with my accountant. Because the publication doesn't really qualify for accrual accounting, it would have invited scrutiny (or worse) had I switched to accrual to get advantageous accounting rules for a specific project.

  • by eggboard (315140) on Tuesday February 18, 2014 @02:23AM (#46273817) Homepage

    I spent many hours and many emails with a good accountant, and he advised me not to launch a Kickstarter late in the year! However, there was no better time, and I had to work around the cash-flow issue, as I describe.

    The state taxation issue was my fault. I had, in fact, budgeted to spend *more* on tax than I actually owed. So I wouldn't have come up short. Based on my communication with the state, I expect that I would pay different rates on parts of the Kickstarter, and potentially pay up to about 5% to the state in tax. In the actual event, it was about 1.5%.

    However, I should have better understand the issue of destination addresses so that I had properly collected that information from everyone. That's something that I've now heard from many other crowdfunding projects about, too.

    Further, at least Washington State requires you pay in-state retail business and occupation tax plus sales tax on all sales for which you cannot account for the destination. That can be a huge tax bill.

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