Late last week, the New York Times published a story that caught our eye: they profiled several entrepreneurs who ran into some complicated tax issues after running successful Kickstarter or other crowdfunding campaigns.
Not only were some of these people surprised at having to pay taxes despite not having formally set up a business, a couple of them ran into particularly thorny problems, such as determining sales tax liability and having a large tax bill due to incomes that didn’t match up with expenses. Check out the article for the details.
The bigger issue here is that many people don’t know that the IRS has a fairly expansive definition of income. While most think of income as either being earned in a formal job where one receives a paycheck and a W-2 or made in a formal business, there are lots of other ways to earn income. As the NYT story notes, the exchange of money for a tangible good and/or service is almost always considered income to the person receiving money. And though the story doesn’t venture into such choppy seas, it’s important to note that money doesn’t have to change hands for income to have been earned.
If you have any concerns at all about the taxable status of business (or non-business) activities, or if you get a form that you’re not sure what to do with (such as the 1099-K discussed in the story above), give us a call and we’ll be happy to make sure all your bases are covered so that you can go back to doing what you do best.