Website visitors and clients have been asking me about Kickstarter. Well, it's an organization offering something that sounds almost too good to be true.
What is Kickstarter?
Note I said "almost." Kickstarter is an innovative way for indies to get funding for their creative projects.
If Kickstarter deems your project worthy it gets invitingly posted on the Kickstarter website, which enables a "backer," that's anyone, to "donate" money to help the "creator," that's you, put together enough funds to make that brilliant documentary or luxury bags made from recycled truck inner tubes. "Donations" can be made with a click.
Kickstarter is a major player in a larger new phenomenon called Crowdfunding. It is a way to raise very small to very large amounts of money from large numbers of people to support a project.
In addition to Kickstarter, a funding platform for creative projects, there are a good number of other crowdfunding websites, such as IndieGoGo, which includes humanitarian appeals for people seeking financial help for medical treatments; Appbackr, which specializes in developing mobile phone apps; and RocketHub, which includes a project for lightweight running shoes with springs embedded in them.
Crowdfunding is an amazing new funding vehicle for projects that otherwise might never make it past the idea stage much less to a business plan. Many indies have had to rely on financing their ventures with their credit cards, a loan from Grandma, or by an equity loan on their homes -- not easy, nor advisable, in the current economy.
What's the tax angle?
The creative indie must state a financial goal and a deadline by which that goal must be reached.
Only if the money goal is met by the stated target date does the creator receive the funds. If not, then pledged funds are not collected from the backers. If the donation drive is successful, Kickstarter takes 5% of the proceeds, nothing if the drive is unsuccessful.
Money can be pledged by major credit card only The card is charged on the target date only if the goal is met.
Backers are not donating money in the way one donates to a charity. The money someone gives toward a project is just that, a gift. The gift is not deductible on the donor's tax return. There is an exception: If the project is classified as a 501(c)(3) not-for-profit organization then the donation is a personal -- not business -- charitable deduction on the donor's tax return.
No matter how much money a backer donates he, she or they have no say nor ownership in the project. Backers are rewarded with something in return, ranging from the backer's name on a list of contributors, to a tee shirt, to a DVD of the documentary, to an invitation to the initial performance, to a signed photo of the work in progress by a famous photographer. The value of these rewards is not taxable to the donor. The cost of the rewards is a business expense for the creators.
Creators will be sent a 1099-k at year-end from Kickstarter. The money the creative indie receives is taxable income. It is included as part of business gross income.
An alternative tax treatment for both backers and creators will come to crowdfunding on January 1, 2013 as part of new legislation through the Jumpstart our Business Start-Ups Act signed by President Obama on April 5, 2012. Watch for more info about that from me in a forthcoming issue of The Maze.
What are your odds?
According the Kickstarter site about 44% of the accepted projects are successful and about 12% of the projects get no donations at all. Oh goodness, how embarrassing. I could not find on the site the percent of projects presented that were accepted or rejected.
There are some complaints about Kickstarter but I did not find them compelling. One claim came from Joe Constitution. His project to develop a blog was rejected. Joe said the rejection "proves Kickstarter.com is a hack liberal organization. Most Likely if I had told them I was researching: Global warming, the effect of McDonald's food on today's youth, I was a socialist with a new utopian idea they would have approved me."
As far as I could tell Kickstarter doesn't approve blogging projects.
Here are three of their successful projects:
Cynthia Hopkins: This Clement World A non-profit musical performance about climate change.
Detroit Needs A Statue of Robocop! How to build a life-sized statue of Robocop in Detroit.
peach A low-budget film of a newly created dance.
There is also a large contingent of marvelous technological projects, including:
Print on Fabric Using Sunlight: The Lumi Process
Knut: Stay Connected A small battery-powered Wi-Fi device using email technology to monitor the temperature in your home, your aquarium, your refrigerator -- in case it's been left open by a kid in a hurry -- and much more.
The PowerPot A generator with no moving parts that directly turns heat from cooking into electricity.
Some of the Kickstarter projects seem, to be sure, a little wacky. But all of them share an admirable entrepreneurial spirit that celebrates the past or explores the future, that fosters self-expression, that promotes in the creator's work a vision of social progress. And by no means least important, the donations validate the project - that someone has come to believe that the creator or creators have something going that is worth bringing to completion.
Indies, have a project worth doing? Check out Kickstarter and let me know what you think.
