Kickstarter and the planning process
RuinValor Kickstarter Financial Funding
Everybody goes into the idea of a kickstarter thinking, "I saw this game make $500,000 and that could be me too!". Admittedly I did the same, but nobody ever thinks of the other problems that occur with making such money. If you are from the US ( as most of us are ) you know that in a time where money is short everybody is looking to make something and this is to include the GOV. What does that mean exactly? It means you cant just obtain the kickstarter money without paying the taxes on it.
As of 2011 all money earned from kickstarter is to be reported to the IRS. This means that the second that you start to get the cash from the big success of your kickstarter project you are now being reported to the IRS for making that sum of money. I have read on several locations and now am in conversation with a CPA about the duties of somebody who earns money from such an entitlement. From what I have gathered the following information is true: ( one thing to note is that I am in no way giving you legal advice, as I am not a trained person... these are just things to think of and ask the CPA you speak with. )
- You should and will be expect to pay taxes on the funds earned
- There are tax exemptions and deductions that you can use to reduce the overall taxes paid
- In some cases, depending if you have the right setup you can avoid them all together ( 501 filing of some type )
- Wording in several locations suggest that the way you present the reward tiers can drastically reduce or increase your chance for tax exemptions
- If you know nothing of financials you should look at hiring a CPA or at the very least get some quick advice from one
- If all of the money earned goes to paying for things for the company ( not used for personal profit ) you can likely avoid all taxes together since it can later be claimed as a tax deduction
- You should setup a separate bank account for your business. Not only for easy tracking purposes but it can aid in the process for separating your tax returns.
Assume I had four people working for me and the 5th employee would be the companies account. If our company earned 250,000 from the kickstarter project the following would be the payments sent out to each party:
Total Earned: 250,000
- Kickstarter: $12,500 ( 5% of total )
- Amazon: $12,500 ( 5% total )
- Employee 1: $90,000 ( 40% )
- Employee 2: $22,500 ( 10% )
- Employee 3: $45,000 ( 20% )
- Employee 4: $11,250 ( 5% )
- Company Cut: $56,250 ( 25% )
Most people do not think of this when they are calculating the needs for their company. They barley have the mindset to see past the $$$$ that they can earn from doing a kickstarter ( and i was one of those people till i started to do my homework on it ). So, I wanted to share this blog and hope that people would see it and possibly understand the process in a new light. If you have any questions feel free to post them and as I learn new things ( I am in talks with a CPA now ) I will post what I learn so as to spread the wealth of information.