Kickstarter Fees and Hidden Expenses
Kickstarter fees and hidden expenses can hobble even a successful campaign if not properly accounted for. Imagine funding just over your goal — Only to realize you forgot to account for fees and taxes, and you’ll now have to scramble to get funds yet again. Even highly successful projects can see delays caused by hidden fees.
So what exactly are the expenses associated with running a Kickstarter? They can be broken down into several categories.
These are the fees levied upon your project by Kickstarter itself. In return for the privilege of hosting your project on their site, you must reimburse Kickstarter with a small percentage of your project’s earnings.
Don’t worry — Unless your project sees a stratospheric level of success, the amount of money paid to Kickstarter won’t bee too substantial. Kickstarter’s FAQ lists a “5% fee to the funds collected for creators”. For a $10,000 project, that’s $500 taken out for Kickstarter. All projects get the same 5% fee, so for a project in the millions that amount becomes much higher (Which is where Kickstarter tends to get a lot of their revenue, and one reason they love promoting huge projects to their followers).
Just like Kickstarter themselves, we can’t give tax advice. Every creator’s situation is unique, and if you are planning a crowdfunding campaign you should at some point seek the counsel of an accountant.
However, there are a few common situations regarding Kickstarter taxes to be aware of. First, Kickstarter themselves does not tax you — Their income is covered by the fees mentioned above. The government, however, would be happy to tax you just as they would if you were paid by your employer. In the United States, money raised through Kickstarter is often considered income. As a project creator, you don’t want that — It’s not fun to be taxed on the money you have to spend just to get your project off the ground.
Luckily most creators should be able to get around this. Generally speaking, money that is spent on operating your business will not be considered “income”, and thus won’t be taxed as income. That means if you receive $10,000 but spend it all on creating your project, you should be able to prove on your taxes that the money wasn’t actually income. The catch is that this money must be spent in the same accounting period in which it is earned.
If you received more money than you spent, you can generally expect that difference to be taxed as income.
This is only the most basic tax advice, so again, seek out the help of an accountant when it comes time to think about taxes more seriously.
Kickstarter works with a third-party payment processor, and they have their own set of fees to watch out for. Unfortunately, the exact nature of those fees is difficult to know.
Kickstarter lists them as “3–5%”, meaning there will be some margin of error when calculating your project’s budget. For the sake to safety, it’s best to assume 5%.
TOTALING YOUR FEES & TAXES
First, take the standard Kickstarter fee of 5%. Then, add on top the additional 5% levied by Kickstarter’s payment processor. Finally — And this is the trickiest part — Try to estimate what any taxes on your project might amount to. Even if you don’t think your project will see a stratospheric level of success, in the case of taxes it might be better to assume it will. That way, you won’t be surprised when the government taxes the difference between your project spending and your total project income.
Add all of the above up, and you get the total Kickstarter fees and taxes for your project.
For more Kickstarter tips and project updates, subscribe to the HobbyHorse Games mailing list below. And don’t forget — our card-based role-playing game Firelight debuts on Kickstarter July 11, 2017!