As of this afternoon, Zack Danger Brown, the man who started a Kickstarter campaign to raise money by promising to make potato salad, owes $21,000.
That’s the conclusion of the Tax Foundation. In its blog post today, the group considers the over $70,000 people have thrown at Brown so far:
We will cap the amount of funding he receives at $70,912 (his total as of 2:28pm on July 9, 2014). Kickstarter takes 5 percent (as a finder’s fee) of the total and Brown is able to deduct expenses associated with that income because the income from Kickstarter qualifies as business income.
Let’s say between the finder’s fee of about $3,500 and business expenses of about $1,500 (in order to make recipe books, and potato salad themed hats, pencils and paper to write his haikus, and a bowl for potato salad mixing), Brown’s pre-tax income drops to $65,912.
Now, let’s assume Brown is a single filer that is able to take a standard deduction of $6,200 and a personal exemption of $3,950 in 2014. Also, since this income is self-employed income, we must calculate Brown’s payroll tax burden, which is $9,313.07. We then take half of this amount ($4,656.53) and, along with the standard deduction ($6,200) and personal exemption ($3,950), deduct it from his taxable income. This gives Brown $51,105.47 in taxable income.
Next, Brown will have to face the U.S.’s progressive tax system. Brown’s first $9,075 dollars will be taxed at a rate of 10 percent. His next $27,824 in income will be taxed at 15 percent. His remaining income will be taxed at a rate of 25 percent. This puts his federal income tax burden at $8,632.22, and his effective federal income tax rate on his Kickstarter funds of $65,912 will be 13.1 percent.
But wait, there’s more. As a resident of Columbus, Ohio, Brown also faces city and state taxes. On his taxable income of $51,105.47, he must pay $1,510.20 in city taxes and $1,712 in state taxes.
And let’s not forget his payroll taxes. As we mentioned earlier, Brown owes $9,313.07 in payroll taxes on his self-employment income. This is calculated from the first dollar of after expenses income of $65,912.
Brown’s success at raising big bucks for questionable projects isn’t translating well to other similar projects that have tried to get some traction. One man’s promise to run around the geographic South Pole as many times as he can in a minute has only raised $10. A game developer who wants to create a game about potato salad and Flappy Birds has raised $37.