What are the tax ramifications of crowd sourced funding for art projects?

I’m thinking about trying to fund an art project via Kickstarter.com. For the record, I live in California.

  1. Are the funds received just considered ordinary income? In other words, I have to pay taxes on the funds, correct?

  2. Can I deduct my parts and supplies costs because I’m an artist? I am selling “levels”; in this case I’m giving a t-shirt away at the lowest funding level, (also the parts cost for the actual art project).

I’m purchasing tools which I am using for this project.

  1. Can I deduct the cost of these tools?

  2. Assuming I can deduct the cost of these tools, at what dollar amount do the tools become “capital equipment”?

  3. How many years do you depreciate the capital equipment?