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Double Tax Issue on Patreon

November 3rd, 2018 | Posted by pftq in Society | #
Would love to be shown wrong here, but as far as I've found, money on @Patreon is taxed for both patron and creator. In any other situation, only the giver or receiver is taxed, not both. Donations to non-profits are deductible, salaries of employees are deductible expense for the employer, even traditional non-Patreon patron/sponsorship arrangements are at least some form of write-off/expense for the sponsor.  But for Patreon, unless you go through the excessive effort of establishing yourself as a company with an elaborate case for how giving to artists is business-related or straight up start a non-profit organization yourself, the money you give on Patreon is going to be from income you paid taxes on, and then that creator also pays taxes on it as their income.

This is a simplification of the math but just to illustrate: If you made $100k this year and wanted to give away half to artists on Patreon, you literally can't because $50k is owed to taxes and you actually only have $50k afterwards for yourself, your own expenses, etc.  Half of your money on $100k income would actually be $25k.  If this were any other situation like hiring or donating to a non-profit, you get to give away as much as you want from the $100k and then only get taxed on what is left over *after* - in other words, half of $100k instead of half of $50k.  It is basically doubling the amount of money someone can give and is normally what happens anywhere else, just not at Patreon.

The best way to solve this is if there is a non-profit through which all patrons are giving through and can treat as a write-off tax-wise.  Then only the creators are taxed, just like any other situation for donations, salaries, sponsorships, etc.  Ideally it is Patreon itself, so no one else has to think about these tax questions or look for some other organization to participate on Patreon through.  It's what you would expect when pledging money and aligns with what Patreon is.

It would also open the doors to large corporate patrons.  Think of how many big corporations already give money for causes, branding, etc. The perk of doing this on Patreon is that you can actually point to your company profile there as proof of you supporting artists, projects, etc.  It can easily become like every company having a Facebook or LinkedIn profile.  But they won't do this if for every million they give on Patreon, they still have to pay half a million in taxes on money they don't even have anymore.  They're better off just giving through traditional means or even just straight up hiring artists - any other situation where again the giver isn't taxed for money the receiver is already taxed on.

Right now Patreon is a for-profit company with investors, which makes all this tricky as they must prioritize maximizing profits.  The only way for now would be if a third party started a non-profit for others to contribute through or if, as mentioned earlier, you set up your own company to give through (which has to be a seriously legitimate business reason or you'll find yourself with a large IRS bill down the road).  I've also received pushback that artists do not want to be "sponsored" or donated to, that there's a negative stigma attached, that they want their work treated as product or service, but this just goes back to the point that you might as well just hire the artist instead.  It's hard to tell what percentage of the userbase is on one side or the other, but at least for me, the goal was to support the artists on a monthly basis.  It's also what a patron actually does and what pledging means.  The point though is that on both sides, whether Patreon is supposed to be a platform for selling goods or supporting artists, it is doing this worse than traditional means, at least from a tax perspective, because of the double taxation.  While this is not a big deal for smaller pledges, it really adds up for those wanting to contribute more significant sums and makes it difficult to sustain long term because it is effectively costing you double what the artist is actually receiving.
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Responses

  1. kztd said,
    May-11-2019, 07:49am

    Just because it's art, doesn't mean it's charity. When you buy a book at the bookstore, you do it with after tax money and it's still income to the bookstore, and eventually the author.

  2. pftq said,
    May-11-2019, 09:34pm

    That's buying a good at a store vs giving money away every month.  If I wanted to buy a book or any other product, I would do it at a store, not on Patreon.  I'm not on Patreon to shop but to support artists each month.  Every artist I support on Patreon is given money regardless of what or if they give anything back to me.  For that kind of arrangement, Patreon is set up currently as a worst of both worlds situation. 

    For example, it makes little sense for me to continue giving money each month to an artist and still owe the tax burden for the money I no longer have vs if I just set up a sponsorship arrangement or even straight up hired the artist into my own company (but gave them free reign to do whatever they want).  In either of those situations, I would be able to deduct that entirely from my tax bill unlike with Patreon.  Even for a film, if I simply joined the production as a producer/investor instead of doing that on Patreon, I would again be able to write off what I gave away instead of being taxed on it.  So as it stands, it doesn't make sense for me to use Patreon if my goal is to unconditionally give to artists (like what a patron actually does); in fact, it is very inefficient since I effectively can only give half as much than if I were not to use Patreon.  The question is not whether art is or isn't charity; it's that, in this case, it can be and to the benefit of everyone involved if given the effort.

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