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Comment by mediascreen | Hacker News Reader

I am pretty sure that you don't have to spend all income the year you receive it to avoid paying taxes on it. One of the foundations of accounting is the matching principle: "Expenses are recognized when obligations are (1) incurred (usually when goods are transferred or services rendered, e.g. sold), and (2) offset against recognized revenues, which were generated from those expenses (related on the cause-and-effect basis), no matter when cash is paid out." http://en.wikipedia.org/wiki/Matching_principle

There are multiple ways to match income and expenses that occur in different years - at least if you have some sort of business entity.

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Most of the folks on Kickstarter don't have the necessary business entities set up to take advantage of that.

I would agree with that for the most part, however, if you're receiving a large sum of money (e.g. the $8 million dollars Ouya received as mentioned in the article received) I think you owe it to your investors to take the time to set up those business entities.

Just to use a widely known example - Pebble that raised millions of dollars on KS. In Pebble's case, each donation was tied to a pre-order. Since the watches have not been delivered, that money is not recognized as revenue on Pebble's income statement. Instead, it is "Deferred Revenue," a liability on Pebble's balance sheet. So, Pebble got an asset (cash) but incurred an offsetting liability (Deferred Revenue). There is no change in equity value, and there is no income until the revenue is recognized (watches are delivered).

Cash method taxpayers do not get to take advantage of "matching principles". They must report income when received.

Matching principles only apply to accrual method taxpayers, who may record invoices or liabilities separately from the actual payment or receipt of payment.

Sorry, it really didn't occur to me that people who raised that much money would not have a business, but maybe it's more common than I thought.

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