Crowdfunding platforms like GoFundMe have made it much easier to raise funds and collect them for personal causes.
You are likely to have your goal of reaching your donation goal if you were involved in a fundraising campaign or the campaign’s helm. There are important tax considerations that you should be aware of when filing taxes.
How you collect funds and the nature of your campaign play a major role in whether or not the IRS considers the money raised taxable. Knowing the rules can help you avoid tax headaches.
Are crowdfunded funds taxed?
According to the IRS, donations can be treated as non-taxable gifts for tax purposes.
You can raise money via crowdfunding platforms for personal causes such as medical bills or education. The funds will be considered gifts and are therefore not taxable. As long as there was no incentive to donate, it is possible to make a donation.
Funds raised through a crowdfunding campaign are considered taxable when they:
-
In return for their donation, donors receive something of value. The IRS could view the donation as a sale and tax any profits as personal income.
-
An employer contributes to a crowdfunding campaign to benefit someone they work for.
Funds that you have set up for another person are subject to the same rules, provided that they were given as promised.
When you raise money for a business venture it can quickly become more complicated. It is a good idea, however, to consult a tax professional should you have questions about taxability.
Are GoFundMe taxes-deductible?
People who support crowdfunding campaigns might be curious if they could get a tax deduction for their generosity. What is the answer? The answer is usually no.
The IRS requires that your donation is delivered to a tax-exempt 501(c), tax-exempt organization in order to qualify for a tax deduction. The IRS has an easy tool to help you locate and search for eligible charities if you have any questions about tax deductions.
It is easier to tell the difference between personal campaigns and fundraisers that are run by 501(c),3 organizations on some crowdfunding sites. GoFundMe has a landing page specifically for charities, while Kickstarter encourages donors and supporters to contact project creators directly to confirm if a donation is tax-deductible.
Should I pay gift taxes on money I give?
You may have to file a federal gift tax return if you donate more than $16,000 (2022) or $17,000 (2203). You don’t have to pay the federal gift tax. Very few people end up paying gift taxes. However, you might need to notify the IRS about your generosity.
What tax documents are necessary for crowdfunding?
If your crowdfunding campaign has raised more than $600 and contributors have received any compensation, the platform will likely send you a 1099K form. This forms outlines how much you earned. This form is not just for you. The IRS also receives a copy. That should suffice to dispel any doubts about whether or not you will report the income on your taxes.
It is important to keep accurate records and receipts, as with everything tax. The IRS can verify the taxability of your campaign as well as the money you earned by it with documentation.
Anyone who creates or manages a crowdfunding campaign should keep a record of it and the distribution of funds for at least three consecutive years. It’s a good idea to consult a tax professional if you have any questions about the tax implications of a crowdfunding campaign.