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Archive for the ‘Tax Law’ Category 10 Business Law and Tax Law Steps to Improve the Chance of Crowdfunding Success (2013)

 :: Posted by on 06-07-2013

Will Lewis, international business, tax, and estate planning advisor, wrote over at

When the Kickstarter closes on December 17, you have raised $1 million. After Kickstarter and Amazon take their cut, you’re left with about $920,000 (1M – 1M * .05 [Kickstarter] – 1M * .03 [estimated Amazon Payments rate]. Great news! Right…? Sort of… The worst case scenario, of course, would be that your project doesn’t get funded at all. However, there are serious tax consequences that the imaginary developers in the above situation are going to suffer that could turn this otherwise successful crowdfunding campaign into a nightmare. If 10% of your pledge total is from people in a state where sales of digital goods are taxed, and the average sales tax is 8%, then you might owe about $7,400 in sales tax to your state ($1M * 0.10 – [$1M * 0.10] / 1.08).  If we assume that the developers didn’t spend any more on development in 2012, and if we assume that all of the developers are subject to an income tax rate of 45% (35% federal and 10% state), then you are going to collectively owe $365,670 (0.45 * [$912,600 - $100,000]) to the IRS and state tax authorities on April 15, 2013.  Until an amended return is filed in 2013, this leaves about $450k for the remaining development, and a profit of $50k if development costs were on budget.

Read the entire article over at


Interesting article comment by Scott Burns:

Why would there be sales tax on crowdfunding money? The backers aren’t purchasing any goods or services, they are investing in the production of goods or services and their selected reward (typically a digital download of the game) is their return on that investment.