Kickstarter Taxes: Are Your Pledges Taxable Income?

Crowdfunding platforms like Kickstarter allow creators to fund projects by raising money from a community of backers. When a project is successfully funded, the creator receives the pledged money to produce and deliver their idea. These funds come with tax responsibilities, as the Internal Revenue Service (IRS) has specific views on how this money should be treated. Creators must understand these implications from the moment they launch a campaign.

When Kickstarter Funds Become Taxable Income

The taxability of the money you raise on Kickstarter hinges on what your backers receive in return. If you provide them with a good or service, the IRS considers the funds to be business income. This is the most common scenario for Kickstarter projects, where backers are promised a finished product or another tangible reward, effectively making the pledge a pre-sale. The entire amount pledged for these rewards is viewed as gross revenue.

In less frequent cases, backers might contribute out of pure support without receiving anything of value in return. For a pledge to be considered a non-taxable gift, it must be made from “disinterested generosity” with no expectation of a benefit. This is a high standard to meet, and the IRS is likely to scrutinize such claims. Even small items can negate the gift classification, turning the pledge back into taxable income.

The IRS also distinguishes between a business and a hobby, which affects how you report income and expenses. A business is operated with the intent to make a profit, while a hobby is not. If your Kickstarter project is deemed a business, you can deduct your expenses from your income, potentially even claiming a loss.

Essential Records for Tax Purposes

Careful record-keeping is fundamental for managing your tax obligations. From the start of your campaign, track all financial data, beginning with the gross income. This is the total amount of pledges received before Kickstarter and its payment processors take their fees, and it is the starting point for your tax calculations.

Equally important is tracking every expense incurred to bring your project to fruition. These costs can be deducted from your gross income to lower your taxable amount. Key deductible expenses include:

• Platform fees paid to Kickstarter, typically around 5% of the funds raised.
• Payment processing fees, which are usually an additional 3-5%.
• Cost of Goods Sold (COGS), which includes the direct costs of creating your rewards, such as raw materials and manufacturing expenses.
• Shipping and packaging materials to send rewards to your backers.
• Marketing and advertising expenses to promote your campaign.
• The cost of any software or online services used for the project.

Maintaining all receipts, invoices, and bank statements provides the necessary proof to substantiate your deductions if the IRS has questions.

Calculating and Reporting Kickstarter Activity

After gathering your financial records, the next step is to calculate your net taxable income. This is done by subtracting your total deductible expenses from your gross income. Your accounting method—either cash or accrual—will determine when you recognize this income and these expenses. The cash method records income when you receive funds and expenses when you pay them, while the accrual method recognizes income when it is earned and expenses when they are incurred.

You will likely receive a Form 1099-K from the payment processing company, not Kickstarter itself. This form is sent to you and the IRS if your gross transactions exceed a certain threshold. For the 2025 tax year, the reporting threshold is planned to be $2,500. The amount reported on Form 1099-K is your gross income and does not account for any fees, refunds, or expenses you paid, so you must reconcile this amount with your own records.

This business activity is reported on Schedule C, Profit or Loss from Business, which is filed with your annual Form 1040 tax return. On Schedule C, you will report the gross income from your Kickstarter campaign and then list your categorized expenses in the appropriate sections. The net profit or loss calculated on Schedule C then flows to your main tax return to be included in your overall taxable income for the year.