Crowdfunding and Taxes

Many people are familiar with crowdfunding to raise money for charities, for gifts, to assist victims of tragedy, etc.  Some of the sites are Go Fund Me, Facebook, Kindful and so many others.  It is always nice to see people looking out for others.  But did you know that money raised in this manner may be taxable for income taxes?

Let’s take a look at when the funds raised are not income taxable:

• If the organizer gives the money to the person for whom the crowdfunding campaign has been organized. 
• If the people contributing have no expectation of receiving anything in return.

However, if an employer donates to a crowdfunding campaign for the benefit of an employee, those contributions are considered taxable income. 

If you are an organizer of a crowdfunding campaign, you are encouraged to contact a tax professional for information and advice regarding the campaign and what to be aware of.  If the amount raised is more than $600, the crowdfunding website must file Form 1099-K with the IRS.  Also, if any goods and/or services are received by the contributors, this must also be reported to the IRS. 

These are the same rules that apply if someone organizes an event to benefit a charity or an individual, such as a golf event.  If you pay to participate in the event (you play golf, you get a meal, etc.) then the total amount of your participation fee is not considered charitable because you received something in return. 

So, if you are a contributor to a crowdfunding event or an event for charity, be aware of the parameters which will be followed for how your contribution will be classified for purposes of it being considered a charitable deduction or simply a gift.  They are not the same and what you may think is a deduction that can be used for income tax purposes may not be eligible.

If you are an organizer of crowdfunding for a specific cause or for a charitable event, do your homework and know what the requirements are for reporting the monies raised.  Be certain to keep good records of the event so that if you are questioned, you can provide whatever information is necessary.

This is not meant to discourage crowdfunding but to make you aware that there may be more requirements than simply setting up a site to collect donations.

Tags: Crowdfunding, Taxes