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Kicktaxing: The Crazy Complexity of Paying Tax Correctly On Crowdfunding
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."
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.
Freelance tech journalist for the Economist, MIT Technology Review, Macworld, and others
Who do you think is responsible for setting tax policy and spending tax revenues? Hint- it's not Obama. Did you sleep through 9th grade Social Studies? Or have you not gotten to 9th grade yet?
Isn't it a weird coincidence that the Dow Jones Industrial Average has doubled since "anti-business" Obama took office?
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.
Freelance tech journalist for the Economist, MIT Technology Review, Macworld, and others
Isn't it a weird coincidence that the Dow Jones Industrial Average has doubled since "anti-business" Obama took office?
Not really, when you consider literally $4 trillion in new dollars (stimulus and QE 1/2/3) pumped into the economy, mainly via Wall Street. That $4 trillion has to go somewhere, and it ended up in the stock market.
Factor out this extra Governmental spending, and our GDP has barely budged over the last 5 years. The stock market is up because there's a lot more free/easy money to throw/invest, not because the GDP is roaring away.
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
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.
"Because Science" is one step from "Because old book". Try "Because of my experiment testing my falsifiable assertion".
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.
"Because Science" is one step from "Because old book". Try "Because of my experiment testing my falsifiable assertion".
As a small business owner, I can say that the US tax system really needs to be simplified. I started my business 3 years ago, and had to learn the accounting and tax side myself (I couldn't afford a CPA or book keeper at the time). For a nation that claims to be built on small businesses, it sure is crazy trying to figure out what's needed to run start or run one.
Memorandum to the guy who wrote the original story:
Almost everyone on Slashdot in 2014 is a raging, gangrene-infected, pus-spewing asshole. I don't think there's ever been a more sour, mouth-running bunch of twaddle-shoveling fucks in the same place in human history.
You posted a good article with some good information for reasonable people who are doing something productive. The people here are only interested in their bong, porn, Xbox and wandering through their mom's kitchen occasionally to grab a handful of potato salad and wipe their ass on the dishtowel.
Keep writing. The people around here would shit on an orphan's birthday cake.
WTF - you know, every other small business person thinks of this shit BEFORE they start. It's not hard, really. Quit pretending you're running a lemonade stand in your parents driveway.
Bullshit.
A lot of the folks running Kickstarters have "business plans" that amount to "distribute sweaters to homeless kittens". Should they realize that has tax implications? Well, perhaps, insofar as you can't fart without the IRS taking a sniff. But to blame people who seriously have a business plan of clothing cats, for not understanding cash-vs-accrual accounting? Seriously, go fuck yourself with your framed MBA, dude.
We wonder what has gone "wrong" with this country? TFA gives a pretty damned good example. Have a good idea? Have adequate funding? Ready to ship and create one of those new Small Businesses the talking heads always praise? Oops, FOAD friend! You forgot about your quarterly withholding on money that no sane entity would consider anything but a production expense - Silly bear, considering our government "sane"! What will you think of next?
For anyone seriously wanting to know the "right" answer to this issue - Move to one of America's few remaining unorganized territories (Maine, Florida, and Alaska have a ton of them); that relieves of you 99% of the "bullshit" burden, which rests solely with your most local taxing authority (the city/town/county), and reduces your nightmare to just the state and federal levels. Most states just want a cut of your AGI, so if you have no profit, nothing to report. The feds just want a schedule C and SE, and couldn't care less how else you officially organize your activities.
Now, if you happen to live in a hellhole like NYC where everyone from the city through your Block Captain to your Landlord to your old roommate from 1976 get to fuck you with taxes - Move, or abandon your dream. Seriously.
He got into these problems with revenue matching because he is running his business on cash basis accounting. In general only very small businesses can be run on cash basis accounting almost all manufacturing oriented businesses use accrual accounting. With accrual accounting you would book the Kickstarter money as a customer deposit and then recognize it as income when the product ships.
http://www.investopedia.com/te...
Thanks, much! Really, I wrote the article in part as a public service, not to be full of myself, because so many people I know have these questions. I have some answers, lots of questions, and lots of places to point people for planning. The commenters here can be awful at times (some are great, thanks!), but they're dwarfed by the number of people who are reading the article.
Freelance tech journalist for the Economist, MIT Technology Review, Macworld, and others
Businesses - those that make stuff - aren't too happy. And they aren't hiring (in case you didn't notice that we've had millions of people drop out of the employment market - due to long-term unemployment). Now, the investors, the financial industry, they don't really care because the Fed's been pumping $85 billion a month into them - and that's made it easy to make money on the stock market. But in general, the business lobbies (outside of the financial and insurance industries - the big winners from the Obama financial moves) aren't happy.
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
I think we could debate the fact that the $3.5 Trillion could have done more for "My economy" had it been spent in public works projects and landed in my pocket.
Bernanke kept "his economy" going -- and that's stocks and record profits. That's 400 families who have more wealth than over 150 million Americans combined.
I'm not some moron who can't understand that we need some bank liquidity to keep paychecks going -- but it would be much better to let a few banks go bankrupt and to redistribute this wealth. It's too depressing to look at the lack of any increase in standard of living since the 70's for the vast majority. And rich people trading paper isn't going to create "demand".
>>"ad space available -- low rates!!!"
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.
Freelance tech journalist for the Economist, MIT Technology Review, Macworld, and others
I'm fairly certain that if you put that money into the hands of the average citizen, banks would find themselves with a lot of liquidity as people start dumping their debt.
I see the glass as full with a FoS of 2.