Can anyone explain the tax situation for Kickstarter backer funds? Is it taxable income? Or is only the remainder after project expenses taxable?

For businesses, it should be treated the same way as any other income - net profits (after allowable expenses) taxable. For individuals, the situation may vary - check with a local tax advisor or tax office for best advice.

There are many significant differences between a contract to provide a good or service and an investment in the creation of a product. It is not correct to say that the only condition that exists is that kickstarter meets its funding target, as I explained in my last post.

The difference between funding a kickstarter project and contracting with someone to build a house is simple. Kickstarter is an investment in something that may or may not happen, with conditions and risks – a reasonable investor would be aware of and bear some risk. A contract to build a house is a contract for the provision of goods and services.

Most jurisdictions have legislation which deals with unfair contract terms. That legislation has to be interpreted (in Courts, by lawyers). Anyone can quote legislation but the key is finding precedent where that legislation has been applied to a practical analogous situation. A number of factors need to be considered when determining whether an exclusion clause is enforceable. Kickstarter's exclusion clauses are unlikely to be found to be in breach of consumer legislation, given the circumstances that Kickstarter will be required to call upon them – in the absence of fraud.

Its not an argument I am putting forward, I am explaining the law. I have been a lawyer for some time, I am in Court regularly in different jurisdictions (previously in the UK) dealing with commercial and corporate litigation, consumer protection and trade practices disputes. Lay people and bush lawyers can write whatever they like about whether kickstarter should be liable in the event that a project doesn't deliver. The fact is, unless there are extreme circumstances, they will not be.

In the US I'm nearly positive it's taxable income. You can probably offset it by spending it on payroll and other business expenses, but that won't stop you from having to file quarterly estimates afaik.
Pretty much this, Kickstarter is full of disclaimers and TOS that state as much. Think of it as "educated gambling". If you lose, you get nothing and you can't sue "the house".

On another note, maybe this is me being naive all over again....

but seeing that the founder of a project has backed a bunch of other projects on kickstarter raises my trust in them somewhat. That at the very least they have good intentions and aren't just out for a quick buck.

Really, this is the key. If the way someone is talking about a project doesn't make sense, don't back it.

And my bigger concern is naivety, not scammers. You get projects popping up with these flowery explanations of them that don't cover any real world issue like timetables, project breakdowns, distribution or logistics. So far, few have been funded, but those are the ones doomed to failure due to inexperience on the part of the people behind them.

There's also the issue of some of these people forming project teams with no fucking project management or business skills on board. I'd be surprised of half these teams have anyone competent to file their quarterly tax estimates, or even know they are required to do so...

Exactly. A number of Kickstarter projects in the board game realm have run in to massive problems with budget overruns because the people behind them tossed up a bunch of Kickstart incentives that proved to be very popular, only to later learn that they grossly underestimated the production costs of those incentives. And that's something I could easily see happen in the computer game realm, where you have projects run by guys who have a background in development, but who have never really dealt with the costs of the sorts of physical extras they're adding to higher level project investors.
Prime example of what I'm talking about. Dude's whole selling point is that he's an idea man and has been a gamer for 30 years. He wants custom servers based on the type of game you're playing, with no information given for how that will work or how much it will cost. H wants a real money market system for in game items and promises good gear being offered, with no information given for how that will happen or how it won't lead to rampant account hacking and item theft. Lore will somehow magically generate based on what you do in the game, which sounds pretty much impossible to implement. He wants quests, but doesn't know how to put them in. No level caps, and no explanation for how the game will keep giving you content matching up with ever arcing player levels. Oh, and interstellar travel!

And he wanted $1.1 million.

And yet, two people apparently backed him for $10,000. If those two people aren't his mom and dad, they need their heads checked.

Kickstarter pledges are not investments - you do not have any chance of a financial return and you gain no ownership of the company or project concerned. What you do have is an agreement to provide products and services within a certain timescale. That is the situation with a building contract, so I fail to see your argument that the two differ.
Since fraud is the main concern in this thread (and the only issue I'm seeking to address), I take it that you agree that KS' exclusions would not likely cover them in the case of fraud?
In which case you should be familiar with how things would play out in the UK - claims under £5,000 (few KS pledges will be anywhere near this) would go on the small claims track and at that level, few companies would consider the costs of defending a claim worthwhile, so claimant gets judgement in default.

So in the case of fraud, UK-based contributors should certainly be able to recover their money (from their credit card issuer - making a claim directly to begin with and using legal action if the claim is rejected) and this would likely apply in other EU countries. Of course, projects can fail in ways that wouldn't qualify for such a refund (delivering an unplayable game due to bugs or bad design) and that is where the risk lies IMHO - even the best developers can turn out a turkey.

There are different kind of investments. Not all investments involve owning a share in the venture or its profits.

I think if you read the posts from the start, there is not much discussion about fraud. KS would most likely have to be a party to the fraud (or have constructive notice of it) to have some liability, in any event. But if the party seeking the funds had committed some fraud or misleading or deceptive conduct, I think an investor would have little difficulty arguing an entitlement to get his or her money back - provided there is some actual evidence of the fraud/mdc.

Each company will treat things differently. I find, when I act for large companies, money isn't an issue (the person who gives me instructions is spending shareholders' money, not his or her own - so he or she doesn't have as much interest in being commercial as someone who is spending their own money on lawyers). That said, I have never been involved in a case for $15. The filing fees in my current jurisdiction for a claim like that are around $80 so it wouldn't really be worth pursuing in any event.
wow.

Kickstarter wouldn't be liable for any fraud unless they had knowledge of it or participated in it. Just putting up the site doesn't constitute any liability. You'll undoubtedly find plenty of case law to back that up as it would apply to Newspapers, radio and TV as well.

And yes, an investment does imply that you own a part of the company and or some sort of profit in the future. That's what an investment is. A preorder or backing is just a way of paying to get the final product so that they can finish it up. You don't get any share of the profit or any ownership stake in the concern.

For me it's not the name. I'm bad with names in general, and rarely look at game credits anyway. I had no idea who Tim Schafer and Brian Fargo were before these Kickstarter projects. Thing is, people like these who have done a lot have proved that they can achieve results, so it's much easier to trust that they will end up having complete and pretty good products. When backing Kickstarter projects from people with a track record the risk is lower.

Many Kickstarters for me are about buying products. There's always an effect of helping the cause (I do want more of this type of game or book or whatever), but I pledge in many cases out of the belief that I will get something I enjoy as a result. I know there's a chance that I won't, but since my investment is meant to help create something I like, getting that thing is a major part of the motivation to put money towards it.

Guys. Kickstarters are NOT investments. They are FUNDS. There's a big difference between them, including lack of impact on the devs you have.

AstralWanderer has good points in this.

Investment is probably not the best word. You are right that you have no right to control the development process. It is a way of sourcing funds, but (in many cases) it is still not a contract to purchase goods.