What to Know About Crowdfunding and Taxes
To determine if a gift on a crowdfunding site (like GoFundMe) has taxable or deductible consequences, the organizer’s intent and situation must be considered.
- Donations made to campaigns, for individual life events or medical bills, with no resemblance to business activities, are considered personal gifts and not taxed as income to the recipient, nor are they tax-deductible for the donor. Donations must be used for the cause listed on the fundraiser, and donees cannot give anything to the donor in exchange for the contribution. If the crowdfunding site issues a Form 1099-K, which is likely if the sum of transactions exceeds 200 and the total value exceeds $20,000, the recipient should report the proceeds as “Other Income” and then show a reduction of that amount with an explanation.
- Other GoFundMe campaigns can be for registered nonprofit organizations. In these cases, the certified charity’s name and EIN must be listed and the cause not intended to benefit specific individuals. These donations are considered tax-deductible to the donor.
- Some businesses organize crowdfunding campaigns to start a business or to keep it afloat. The business owner must report donations as business income, but the donor cannot claim the deduction.
- A generous donation by a single donor to one of these campaigns not qualifying as a charitable deduction may be subject to gift tax rules if it’s more than $15,000.
Killingsworth Spencer’s advice: keep good records; any dispute with the IRS puts the burden of proof on the taxpayer. As with many tax situations, determining how to handle specific circumstances can be complex; when you’re in the need of sound expertise, set up an appointment with one of our tax professionals.
Contributing author, Lynn Spencer, Killingsworth Spencer LLC.