Zack Brown just wanted to make some potato salad. As a joke, the Columbus, Ohio, man asked visitors to Kickstarter, the crowd-funding Web site, to donate toward his $10 goal to buy the ingredients for his tasty treat. Then the post went viral, and at its peak Brown had secured pledges north of $70,000.
Three weeks from now, when Brown’s Kickstarter campaign ends, the tax man will cometh.
Kickstarter makes clear that funds raised through the Web site must be considered income. Whatever amount someone receives and doesn’t spend on deductible expenses on his or her business will be subject to federal, state and local taxes. That’s great news for the state of Ohio, which stands to make some big bucks off Brown’s potato salad.
How much? The Tax Foundation ran the numbers and found that the $70,912 in Kickstarter gifts would generate $21,167.49 in total taxes. That’s a whole lot of potato salad.
Here’s how the Foundation did the math: Kickstarter takes 5 percent of pledged gifts as a finder’s fee, which keeps them in business. That’s $3,500. If Brown spends $1,500 on business expenses — he’s pledged to give big donors their own recipe books and potato salad-themed hats, plus the ingredients he’ll need to whip up all those side dishes — his pre-tax income will be $65,912.
A standard deduction of $6,200 and a personal exemption of $3,950, plus $4,656.52 in self-employed payroll taxes, and his taxable income stands at $51,105.47. Federal income taxes will take $8,632.22, an effective tax rate of 13.1 percent. Columbus will stand to make $1,510.20 in city taxes, and Brown would owe Ohio $1,712 in state income tax. Add in the $9,313.07 in payroll taxes he owes, and his total bill is $21,167.49, for an effective tax rate of 32.1 percent.
Brown’s tax bill is so high in part because local taxes in Ohio are considerably higher than in other states. Only 13 states have localities that collect state taxes, said Elizabeth Malm, an economist at the Tax Foundation, including Alabama, Delaware, Iowa, Indiana, Kansas, Kentucky, Maryland, Michigan, Missouri, New York, Oregon and Pennsylvania.
Fortunately, it looks like Brown’s taxes will be lower than $21,000. Unfortunately for him, that’s because hundreds of potential funders appear to have backed out. Overnight, Brown’s pledged total dropped from more than $70,000 down to about $46,410, as of this morning. Still, that’s $46,400 more than Brown set as a goal.
All for some potato salad. We hope it’s yummy, Zack.