Crowdsourcing and Tax Implications

Can anyone offer any personal experience of the sort of tax implications that result from crowdsourcing?

From some research it seems that any funds raised by crowdsourcing are considered taxable income, but also if you offer a reward for a pledge, it’s considered a sale, so may also be subject to sales tax/ GST/ VAT etc.

A family member overseas and I are discussing a project. I would not want to burden them with a tax bill because their bank accounts were used in the fund raising.

I don’t know why the IRS would not consider it taxable income. Especially if it were a tea party crowdsourcing.

I would handle it under a schedule C, as I did when I ran my own business. Seems pretty straight forward to me but I am not accountant.

As for a VAT tax, that is interesting. I just helped fund a documentary in Italy. I’ll get a poster and a DVD out of the deal. But since they are sending it to the US, VAT does not apply. That is why I buy a lot of bicycle equipment from the EU. The 20% off usually covers any shipping charge.

Sales tax worries would only apply if you are shipping within your state and will depend on your state’s laws.

Are you in Australia and they are in the US?

This is the kind of thing I’d recommend talking to an accountant about who’s familiar with the tax code.

Yes, it’s most likely taxable income but if it’s going to a corporation or LLC and not an individual than it’s up to the corporate responsibilities to pay the taxes. You should be able to figure out how much of the income is going to be taxed and just put that aside to not spend it.

As far as sales tax, generally that’s state based - but that one’s a little questionable if you are “Selling” goods to people within the same state as your corporation, then it should be subject to sales tax.

Yes. Using a family member in the US seems to be the easiest way, but I don’t want to risk putting them at a tax/ financial disadvantage, seeing as they would be essentially the ‘bagman’ (i.e. they claim an income of $XX and the tax man points out “but you had $XXX in your account, where did that come from?”) especially if the tax issue raises its head a few years down the track.

I’ve been told that setting up as a ‘company’ in Delaware is fairly straightforward (though pricey) and can get you what is required for the Amazon Payments setup that is necessary for Kickstarter.

Of course, I could just use international sites like or local sites like and be smarter about promoting/ marketing the campaign.

Or Kickstarter could get off their lazy arse and open it up wider, like they’ve been saying on their FAQ for years.