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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 392
Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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I will get a fundraising for my new invention through Kickstarter

Resolved Question:

I will get a fundraising for my new invention through Kickstarter . But the money will be sent to the bank of my US relative (say mr.A) because it need to have a SSN to receive money from Kickstarter although I already have EIN (I form a LLC company already). The question is: Is Mr. A will need to pay tax ? and how to calculate that tax ?
Submitted: 1 year ago.
Category: Tax
Expert:  taxmanrog replied 1 year ago.

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

 

Kickstarter is an organization that gets people to pledge money for a project, and if the funding goal is reached, the person that requested the funding gets the funding. It is an all or nothing situation. If people pledge 100% or more of the amount requested, you get the money. People expect something - a copy of a book, tickets to a movie premier, something related to the project - in exchange for their pledge.

 

The reason that Kickstarter requires a SSN is so that they can report the payments on a Form 1099-MISC to you (or your US relative). This would be considered US-Sourced income, so there are no foreign tax credits that you, living in China, could use to offset the US tax on this income. Your US relative could turn around and pay the money to you or your company, and report the payment on another Form 1099-MISC, but then you would pay the tax on the income. In short, SOMEONE has to pay the tax!

 

The IRS defines gross income as all income you receive in the form of money, goods, property, and services that is not exempt from tax. You are receiving money from a fundraising company in support of your developing an invention. This falls within the definition of gross income.

 

In answer to your question, yes, your US relative would be taxable on the earnings. If the relative paid it to your LLC, your US relative would get a deduction for the amounts paid, and the LLC would be taxable on the income. If Mr. A, your relative, does not pay the money to you, he would pay tax at a rate of 15.3% for Self-Employment tax, PLUS tax at whatever his marginal tax bracket is, plus state tax at whatever marginal tax bracket he is in. For example, if he were in the 25% Federal marginal tax bracket, he would pay 15.3% + 25%, or 40.3% tax on the income. He would also pay state tax on the earnings, as I said.

 

I hope this answers your question! If you have any more, please feel free to ask! If you have found my answer helpful, please rate me highly! I would appreciate that!

 

Thanks again! Have a great week!

 

Roger

Customer: replied 1 year ago.

OK thanks


 


Most probably my relative will paid it to the LLC. Means he will reported he only helped the LLC receives money from Kickstarter and not get any bonus/commission/income at all.


 


And then, how much should the LLC pay ? lets say the fundraising collected $50,000, how much should the LLC pay to the IRS ?

Expert:  taxmanrog replied 1 year ago.

Before I can answer how much tax your LLC will pay, I need some more information.

 

1) Are you the sole owner of the LLC?

2) Have you made a "check the box" election for the LLC and elected S-Corp status?

3) Are you a US citizen or resident? If not, are you a citizen of China? or what country?

4) Are you single or married? Any kids?

 

Once I have these answers, I can better calculate the tax.

 

Thanks!

 

Roger

Customer: replied 1 year ago.

1. No - It's me with other person which also not US citizen.


 


2. I'm not sure what is this. But I think we never elected S-Corp. Actually we just use the LLC for buying office. We never release invoice/create sales.


 


3. No, I'm from Indonesia who live in China now. BTW, how do you know i'm in China


 


4. I'm married and no kids. The other partner is married with 1 kid, and her husband was a PR (and have SSN) before in US although they are not in US anymore and the LLC was registered under wife's name (mean no SSN)


 


Pls let me know


 


thanks


 

Expert:  taxmanrog replied 1 year ago.
OK. I ran your fact pattern through my tax program. You need to get an ITIN for either yourself, or the wife of your PR friend with the SSN. One of the two of you will be paying the tax on the income.

I have calculated the tax to be about $6,800 for income tax, plus $6,200 for Self-Employment tax, for a total of about $13,000 total tax. Any expenses that you incur will reduce the tax. For example, your research and development costs, the costs you pay for models, test units, trials, etc., are all deductions against the $50,000 of income you anticipate. These will reduce the tax you pay.

I hope this answers your questions! If you have any more, please feel free to ask! If my answer was helpful, please rate me highly! I would appreciate that!

Again, thanks! Have a great week!

Roger
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 392
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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