so kickstarter FAQ mentions the tax considerations (and lack of) for BACKERS, but what about for the person you contributed to
For instance, take a project like OUYA all funds went to Boxer8 Inc. What are the tax consequences on them receiving that money?
I'm mainly curious about the federal government's IRS, don't care about states. "Tax attorneys" can be just as incompetent as random internet advice, so just state what you know and give a credible source for further evaluation.
Do they incur no tax liability? is it ordinary income tax? something else?
clearly getting 8 million dollars for your corporation without tax would be convenient, but I think it is unlikely that this does not incur tax liability
Of course they incur tax liability. Its pretty simple, actually: according to Kickstarters, projects are required to provide rewards. That means that the funds the projects receive are actually sales.
This allows the project owners treating the project just as any other retail business, but since the rewards are considerably cheaper than the actual project cost, there's enough income to deduct project expenses from. What's left - is your profit and is taxed as an ordinary income on schedules C and SE.
If you don't have any profit intentions, then its a hobby, and there's much less to deduct, but on the other hand the ordinary income doesn't appear on schedule SE (although the regular tax is much higher, so I'd suggest treating it is business).
By the way, I've already answered this very question on [email protected]. As I mentioned there, timing may affect your tax liability.
This is not a tax advice, see the disclaimer in my bio page. Talk to a EA/CPA for a tax advice.