The IRS? They want to congratulate you on your successful Kickstarter campaign by making sure they collect tax on it. They consider income to be “all income from any source”(IRC Sec 61).
Just because the money you raised is taxable, it does not mean you owe tax, necessarily. Your hard work has not come cheap, and all that money spent, working on your prototype, or shipping the finished product, will offset that income. There is a good chance you spent, or will be spending, more than you raised to start out. As long as you’ve been keeping track of it all, it won’t be hard to prove.
The worst thing you can do is simply ignore this issue. From Kickstarter’s website:
“Amazon Payments handles transactions conducted through Kickstarter for US projects. Amazon Payments will file Form 1099-K to report unadjusted annual gross sales information for people who meet both of the following thresholds in a calendar year:
• More than $20,000 in gross sales, and
• More than 200 transactions. ”
What is a 1099-K? What should you do with it? A 1099 puts the IRS on notice that you will be reporting thatthat amount of income on a tax return. It is up to you to report all your expenses, otherwise you’ll end up paying tax you don’t owe.
Suppose it’s October, and you just have a great idea for a project. Things go well and you receive your money from say, Kickstarter, in December. You don’t begin to ramp up production until late January, and come March you’ve spent most of the funds from the campaign, and all your backers received what you promised them. Life is great, until April comes around and you have to file your tax returns. You remember that you received all your campaign funds last year, and didn’t start spending until January. All the IRS sees is income from last year, and no deductions. You owe tax on the full amount of the campaign, and you have to wait until next year to claim the deductions. With a little planning, a situation like this can be avoided.