I've been wavering on launching the Aywas plush kickstarter. It's something that I really need to sit down and think about when it comes to the tax consequences. Here's why:
Let's say I run my kickstarter. I think the goal was set to something like $30,000. This covers the cost of the merchandise, the cost of the rewards, shipping, and KS/Stripe fees. If we raise this much, then we're golden, because I'd have enough money to get everything owed to the backers.
But then I start getting into complex questions of inventory. In US tax law, product that you intend to sell is inventory, and you cannot take the cost of it as an expense until it is sold. This means that until every piece of inventory is sold (or given away if I wanted to expense the cost as advertising or donation, depending on the circumstances) I cannot take the full cost of the product production as an expense, and I am expected to pay taxes on the income.
This is frustrating. This makes product creation hard. Let's say that a plush costs you $15 to make and you want to sell it for $20. A $5 profit. If you produce 250 plushes, that costs you $3750. Which means that to hit your goal, you need to sell 187 plushes in your Kickstarter.
Let's say you hit your goal and sell all 187 plushes. $3750 comes in (assuming no fees or shipping in this situation). You pay $3750 to the manufacturer and get all 250 of your plushes. You hand 187 of the plushes to your customers. You get to take a $2805 deduction for the cost of the 187 plushes you sold ($15 per plush), and the rest is considered profit. This means that by selling 187 plushes, you made a profit of $945 and you are expected to pay taxes on that profit.
But! That profit was already sent to the manufacturer to pay for the plushes in the first place. So you have to pay taxes on money you no longer have, because the remaining plushes have not sold yet and you cannot take their cost of production as an expense. (They are considered an asset and not an expense until you sell them.)
This problem is a hundred times harder for me because with my Aywas kickstarter I'm looking at ordering 1500 plushes if the kickstarter is fully funded. And for every one that doesn't sell during Kickstarter, I have to pay the taxes on money that was already spent fulfilling the kickstarter by paying the manufacturer for the customers who bought the plushes.
Aaaaarggghhhhh this is why I hate product development! Is there something I'm missing here? Because both my tax advisor and my accountant told me this is how it works.
Let's say I run my kickstarter. I think the goal was set to something like $30,000. This covers the cost of the merchandise, the cost of the rewards, shipping, and KS/Stripe fees. If we raise this much, then we're golden, because I'd have enough money to get everything owed to the backers.
But then I start getting into complex questions of inventory. In US tax law, product that you intend to sell is inventory, and you cannot take the cost of it as an expense until it is sold. This means that until every piece of inventory is sold (or given away if I wanted to expense the cost as advertising or donation, depending on the circumstances) I cannot take the full cost of the product production as an expense, and I am expected to pay taxes on the income.
This is frustrating. This makes product creation hard. Let's say that a plush costs you $15 to make and you want to sell it for $20. A $5 profit. If you produce 250 plushes, that costs you $3750. Which means that to hit your goal, you need to sell 187 plushes in your Kickstarter.
Let's say you hit your goal and sell all 187 plushes. $3750 comes in (assuming no fees or shipping in this situation). You pay $3750 to the manufacturer and get all 250 of your plushes. You hand 187 of the plushes to your customers. You get to take a $2805 deduction for the cost of the 187 plushes you sold ($15 per plush), and the rest is considered profit. This means that by selling 187 plushes, you made a profit of $945 and you are expected to pay taxes on that profit.
But! That profit was already sent to the manufacturer to pay for the plushes in the first place. So you have to pay taxes on money you no longer have, because the remaining plushes have not sold yet and you cannot take their cost of production as an expense. (They are considered an asset and not an expense until you sell them.)
This problem is a hundred times harder for me because with my Aywas kickstarter I'm looking at ordering 1500 plushes if the kickstarter is fully funded. And for every one that doesn't sell during Kickstarter, I have to pay the taxes on money that was already spent fulfilling the kickstarter by paying the manufacturer for the customers who bought the plushes.
Aaaaarggghhhhh this is why I hate product development! Is there something I'm missing here? Because both my tax advisor and my accountant told me this is how it works.
