• Announcements

    • khawk

      Download the Game Design and Indie Game Marketing Freebook   07/19/17

      GameDev.net and CRC Press have teamed up to bring a free ebook of content curated from top titles published by CRC Press. The freebook, Practices of Game Design & Indie Game Marketing, includes chapters from The Art of Game Design: A Book of Lenses, A Practical Guide to Indie Game Marketing, and An Architectural Approach to Level Design. The GameDev.net FreeBook is relevant to game designers, developers, and those interested in learning more about the challenges in game development. We know game development can be a tough discipline and business, so we picked several chapters from CRC Press titles that we thought would be of interest to you, the GameDev.net audience, in your journey to design, develop, and market your next game. The free ebook is available through CRC Press by clicking here. The Curated Books The Art of Game Design: A Book of Lenses, Second Edition, by Jesse Schell Presents 100+ sets of questions, or different lenses, for viewing a game’s design, encompassing diverse fields such as psychology, architecture, music, film, software engineering, theme park design, mathematics, anthropology, and more. Written by one of the world's top game designers, this book describes the deepest and most fundamental principles of game design, demonstrating how tactics used in board, card, and athletic games also work in video games. It provides practical instruction on creating world-class games that will be played again and again. View it here. A Practical Guide to Indie Game Marketing, by Joel Dreskin Marketing is an essential but too frequently overlooked or minimized component of the release plan for indie games. A Practical Guide to Indie Game Marketing provides you with the tools needed to build visibility and sell your indie games. With special focus on those developers with small budgets and limited staff and resources, this book is packed with tangible recommendations and techniques that you can put to use immediately. As a seasoned professional of the indie game arena, author Joel Dreskin gives you insight into practical, real-world experiences of marketing numerous successful games and also provides stories of the failures. View it here. An Architectural Approach to Level Design This is one of the first books to integrate architectural and spatial design theory with the field of level design. The book presents architectural techniques and theories for level designers to use in their own work. It connects architecture and level design in different ways that address the practical elements of how designers construct space and the experiential elements of how and why humans interact with this space. Throughout the text, readers learn skills for spatial layout, evoking emotion through gamespaces, and creating better levels through architectural theory. View it here. Learn more and download the ebook by clicking here. Did you know? GameDev.net and CRC Press also recently teamed up to bring GDNet+ Members up to a 20% discount on all CRC Press books. Learn more about this and other benefits here.
  • entries
  • comments
  • views

Crowdfunding... and taxes?

Sign in to follow this  
Followers 0
Matias Goldberg


So, I was reading a few forums today, and crossed around this page, about the tax implications of crowdfunding.

I don't know how it's currently being handled. Probably the way it's been suggested by the posters.

I'm not in the US, nor am I familiar with their tax laws, but I am familiar with the one's in my country and Taxation Theory in general. I would like to develop further on the concept; since my soon-to-be accountant mind can't stop guessing about it:

The problem with crowdfunding, as I addressed previously in another post, is that it's not well defined what it actually is. And hence, it's hard to tell how it should be taxed.

It looks like a pre-sale on most aspects, except that if the project isn't delivered, the money is lost; which is why it also shares some aspects with an investment, because backers take a risk. Or it could be seen as a simple donation.

Note: When I speak about "some laws" I'm referring to "laws in different countries".

Is it a pre-sale?

If it's a presale, then the company is owing something. In accountancy terms, that money doesn't constitute accrued revenues yet.
Some tax laws impose the obligation to pay the tax the moment the money enters the company's pocket, but most of the time, the obligation comes when the revenue becomes accrued.

This means the tax will be paid the moment the game is sold (or when the project gets cancelled, unless the money could somehow be handed back to their backers. Although this would bankrupt any start up company)

Is it a donation?

If it is, then the moment to pay is when the money enter's the company's pockets unless it's a non-profit organization. Seemingly easy case.
Except when the company then "gives away" their game to their backers, it constitutes a donation (which is actually a delievery of what's been promised), this time from the company to the backers.

The thing is, some laws prevent or impose limits to substracting donations from their Gross profit, resulting in higher gross profit(*). Therefore such "donation" is taxed again. This constitutes double-taxation, so proper care must be taken to explain your local Country's IRS of the situation.

Another approach to the double-taxation problem is that it's not a donation at all, but rather a necessary cost to sustain the Source of Earnings, therefore the limits to substract donations from net sales don't apply.

(*) I simplified it since most of the readers aren't tax experts. Donations are actually substracted from gross profit, resulting in higher net income. Doesn't really change the point of the discussion.

Is it an investement?

A long discussed argument. I won't go into why it is, and why it is not.
But if it is, then investments aren't taxed. The moment the investors pay their revenues varies wildly per country. Normally, variations include:

  • Investors pay their taxes when they receive their dividends.
  • Investors pay their taxes when the distribution of dividends has been decided.
  • Investors don't pay, because the Company already paid for them.

    • The company is not allowed to substract dividends from their Gross profit, resulting in higher Net income. Paying a tax on the dividends would be double-taxation, so nothing is done.
    • The company is allowed to substract dividends from their Gross profit. The tax is separately paid by the company either when the dividends have been approved or when the investors actually receive the money.
    • There are also hybrid models (investors pay a portion of the tax, the company pays the other part)
    • etc....

      The thing is, none of the backers receive dividends. Therefore the money they put in, is never taxed; but we could do a bit more reasoning behind it:

      • If the final game is worth more than the ammount the backer "invested", that difference is a taxable result. Thing is, unless some law says otherwise (i.e. for the sake of simplicity), it is the backer the one who should pay the tax, not the company! It should be noted though, the company ought to be able to deduce that difference from their gross profit (see donations above); in which case the total ammount the Government receives is cancelled. As a result, tax laws should consider not to pay in this case; as it doesn't make sense to spend effort on this. But unless there's a law allowing it, it is the backer who ought to pay the tax.
      • If the final game is worth less than the ammount the backer "invested", that difference is also a taxable result! The company received more money than it should and must pay taxes for that. As for the backer, unless he makes game for a living (the backer is either another game company or an indie developer), he probably can't substract that donation (depends on the each law). This difference is a taxable result.

        Since the only way crowdfunding can be taxed is, in this line of thought, when the final game is worth less than the ammount the backer invested; this is clearly the worst option for the Government, and the most beneficial to videogame companies and the "investor"; from a taxation perspective of course.

        My personal opinion, crowdfunding resembles a lot like pre-sales, and should be taxed as such. The alternatives are way too complex; while the pre-sale method of handling taxes is widely used and well understood. Furthermore it is the most fair and provides incentives for start up companies, since tax payment is delayed until the game is produced & released, allowing a company to use funds obtained from crowdfunding with more freedom; provided there's an exception for start ups in case they fail to deliver the project.

        Well, this ended up being longer than expected, but I think I fully covered the issue. Hopefully we'll start seeing some more serious debate about it.
        I'm hoping to see some feedback, as well as some of you sharing your stories or your a view from your Country's legislation in the comments.


        Don't forget to subscribe! @matiasgoldberg

        This is a reprint from my dev. blog: http://distantsoulsd...-and-taxes.html

Sign in to follow this  
Followers 0


The whole crowdfunding phenomena is interesting. Heck, even the US house backed a [url="http://www.bbc.co.uk/news/technology-17535660"]bill[/url] recently to start setting the laws in place to properly allow for it. I'm guessing this may or may-not muddy the waters more.

Share this comment

Link to comment
I've been considering the crowdfunding route - certainly food for thought. Thanks!

Share this comment

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now