Crowdfunding 101: 7 Accounting Tips
Kickstarter has become a great alternative source for funding a new business adventure. However, there are some important accounting issues you must understand before launching your crowdfunding campaign on Kickstarter. There are different tax implications related to crowdfunding as a primary business-financing source. Therefore, it is important to know how to accurately report and record your income received from your Kickstarter campaign.
- Separate Your Funds: It is mandatory for anyone starting a new business to have a separate account for your business and your personal funds. Before you ever launch a crowdfunding campaign, make sure you have a business account opened.
- Determine Your Reward Levels: Before starting a Kickstarter campaign, it is important to understand that the funds you raise are considered income. Therefore, you are liable for paying taxes on these funds. In order to have the income necessary to start and complete your project you must first determine how much taxes you’ll pay. Afterwards, factor your tax liability in your budget and campaign.
- Record Your Contributions: Recording Kickstarter campaign contribution is tricky. Therefore, it is necessary to seek the advice of an accountant before starting your campaign. Furthermore, you must keep records of all your crowdfunding contributions and the name of the company or person who gave the money.
- Record Your Expenses: An accountant will help you set up the necessary account to track your expenses. However, before you start your project make sure you have an estimate of all your related expenses. This estimate will be used for your Kickstarter campaign so it is necessary to be accurate with your expenses.
- Provide Your Taxpayer ID: Before you can start your Kickstarter campaign, it is necessary to have a taxpayer ID. The money earned during your Kickstarter campaign will be recorded by Stripe and they’ll file a 1099-K with the IRS,
- Tax Settlement: Stripe records the income earned during all Kickstarter campaigns and files a 1099-K with the IRS for any campaign that earns $20,000 or more. However, if your campaign doesn’t earn this amount, you’ll have time to fulfill your pledge promises before paying your taxes. Therefore, it is necessary to keep accurate records and track all your revenue and expenses for your project.
- State Tax Liability: If you live in a state that charges sales taxes, then you’re liable for paying a sales tax on your earned income from Kickstarter. You’ll need to keep records of your contribution received from anyone living in your state. Afterwards, you are responsible for reporting and paying the sales taxes on your Kickstarter campaign.
About Ann Johnston
Ann enjoys writing, reading, gardening, fishing and the great outdoors. Her job has allowed her to travel and live in different countries. She enjoys studying and learning about different cultures..