Crowdfunding and Kickstarter Income: When It's Taxable and How to Report It

By Yarik Yarosh, CPA ·September 5, 2026 ·6 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

Crowdfunding has become a major funding source for small businesses, but the tax treatment depends entirely on the type of crowdfunding. Reward-based crowdfunding (Kickstarter, Indiegogo) where backers receive a product or perk is treated as advance sales revenue, taxable as ordinary business income in the year the funds are received (or when the obligation to deliver is established). Equity crowdfunding (Wefunder, Republic, StartEngine) where investors receive ownership shares is treated as a capital contribution, not taxable income to the company. Donation-based crowdfunding (GoFundMe for personal causes) is generally treated as a gift under IRC 102, not taxable to the recipient. The key complication is that crowdfunding platforms issue Form 1099-K for gross payments meeting the $20,000 / 200-transaction threshold (as of 2024), meaning the IRS sees the full amount received, and the taxpayer must properly report income and deductions to show the net taxable amount.

✓Key takeaway

Crowdfunding types and tax treatment:

Type	Examples	Tax Treatment	Reported On
Reward-based (product/perk)	Kickstarter, Indiegogo	Ordinary business income	Schedule C or corporate return
Equity (ownership shares)	Wefunder, Republic, StartEngine	Not income (capital contribution)	Balance sheet (increase equity)
Debt/lending	LendingClub, Prosper	Not income (loan proceeds); interest is deductible	N/A (loan, not income)
Donation (personal cause)	GoFundMe (personal)	Generally a gift (not taxable)	Not reported (unless >$17,000 per donor)
Donation (business expense)	GoFundMe (for business)	Taxable income	Schedule C or corporate return

When crowdfunding income is taxable vs. not:

Scenario	Taxable?	Why
Kickstarter: $50,000 raised, backers get a product	Yes	Advance sales revenue
Indiegogo: $20,000 raised, backers get a “thank you” email	Yes	Still income (minimal perk doesn’t change the analysis)
GoFundMe: $10,000 raised for personal medical bills	Generally no	Gift from donors (IRC 102)
GoFundMe: $10,000 raised to restart a business after a fire	Yes	Business income
Equity: $100,000 from investors for 10% ownership	No	Capital contribution, not income
Kickstarter: campaign fails, all money refunded	No	No income received

1099-K reporting:

Factor	Details
Threshold (2024+)	$600 in gross payments
What’s reported	GROSS amount (before platform fees, refunds)
Who issues	Payment platform (Kickstarter, Stripe, PayPal)
What to do if amount includes non-taxable items	Report gross on Schedule C, deduct platform fees, refunds, COGS on expense lines

How does a Kickstarter campaign get taxed?

Hypothetical example

Round numbers. An entrepreneur launches a Kickstarter campaign for a new product. Campaign runs from October to November 2025.

Campaign results:

Item	Amount
Total pledges (1,000 backers x $100 average)	$100,000
Kickstarter fee (5%)	($5,000)
Payment processing fee (3%)	($3,000)
Net received	$92,000
Refunds (failed payments, cancellations)	($2,000)
Cash deposited	$90,000

Year 1 (2025): Income recognition The $100,000 in pledges is recognized as income when the campaign closes and funds are collected. For cash-basis taxpayers, the income is recognized when received ($90,000 cash). For accrual-basis taxpayers, income is recognized when the right to receive payment is established ($100,000 gross).

Gross pledges total $100,000. After $2,000 in refunds, $98,000 is collected from backers. The platform deducts $5,000 in fees and $3,000 in processing fees, depositing $90,000.

On Schedule C:

Line	Cash Basis
Gross receipts	$98,000 (what backers paid, per 1099-K)
Returns and allowances	($0, refunds already excluded from 1099-K, or reported here if included)
Cost of goods sold	(see below)
Platform fees (other expenses)	($5,000)
Processing fees	($3,000)

1099-K reporting: The 1099-K from the payment processor will show the GROSS amount processed. If Stripe processes $100,000 in pledges before refunding $2,000 and deducting fees, the 1099-K may show $100,000. The entrepreneur must reconcile:

| 1099-K Amount | $100,000 | |Minus: refunds | ($2,000) | | Minus: fees deducted from gross | ($8,000) | | Net cash received | $90,000 |

Report $100,000 as gross receipts on Schedule C, then deduct the $2,000 as returns/allowances and $8,000 as expenses. This matches the 1099-K and avoids an IRS notice.

Year 1 (2025): Expenses (before product delivery)

Expense	Amount
Product development (completed before campaign)	$15,000
Campaign video production	$3,000
Marketing and advertising	$2,000
Total pre-delivery expenses	$20,000

Year 2 (2026): Product delivery and COGS

Expense	Amount
Manufacturing (1,000 units x $30)	$30,000
Shipping (1,000 x $8)	$8,000
Packaging	$2,000
Total COGS/delivery expenses	$40,000

Tax timing problem:

Year	Income	Expenses	Net
2025 (campaign closes)	$90,000	$20,000	$70,000 taxable
2026 (products ship)	$0	$40,000	($40,000) loss

The entrepreneur pays tax on $70,000 in 2025 but doesn’t ship (and incur the major costs) until 2026. This timing mismatch means paying tax before the actual profit is known.

Solutions for the timing mismatch:

Solution	Effect
Accrual method with deferred revenue	Recognize income only when products ship (2026). Report $0 in 2025, $90,000 - $40,000 = $50,000 in 2026.
Advance payment deferral (Rev. Proc. 2004-34)	Defer revenue to the year of delivery (if delivery is expected within the next tax year).
Cash basis, accelerate expenses	Purchase manufacturing materials in 2025 to match income timing.

For most small crowdfunding campaigns, the cash basis with accelerated expenses is simplest. For larger campaigns ($100,000+) with delivery spanning multiple years, consulting a CPA about the deferral methods is worthwhile.

Estimated tax impact: The $70,000 of net income in 2025 triggers estimated tax obligations. If the entrepreneur is a sole proprietor:

Tax	Amount
Federal income tax (24% bracket)	$16,800
Self-employment tax (15.3%)	$9,867
State income tax (assume 5%)	$3,500
Total tax on crowdfunding income	$30,167

The entrepreneur should set aside approximately 33-40% of net crowdfunding income for taxes and make quarterly estimated tax payments to avoid penalties.

Illustrative numbers only, not a real client and not advice for your facts.

What are the penalties for failing to file 1099s?

The penalty for failing to file a correct information return (including 1099-NEC and 1099-MISC) is $60 per return if filed within 30 days of the due date, $130 if filed after 30 days but by August 1, and $330 per return if filed after August 1 or not at all. Small businesses (average annual gross receipts of $5 million or less) pay reduced penalties. If the failure is due to intentional disregard of the filing requirement, the penalty increases to $660 per return with no maximum. You must also furnish the payee statement (the recipient’s copy) by January 31, and a separate penalty schedule applies for failure to do so. The backup withholding rules (IRC 3406) require you to withhold 24% from payments to any payee who fails to provide a valid TIN on Form W-9.

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Cite this page

Yarik Yarosh, CPA. "Crowdfunding and Kickstarter Income: When It's Taxable and How to Report It." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-crowdfunding-kickstarter-income-tax

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.

Crowdfunding and Kickstarter Income: When It's Taxable and How to Report It

How does a Kickstarter campaign get taxed?

What are the penalties for failing to file 1099s?

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