(Updated on September 30, 2021 – originally published on February 20, 2020)
Generally, contributions made to “crowdfunding” campaigns (such as GoFundMe) are considered to be personal gifts, and as such, are not taxed as income to the recipient. The IRS does not consider fundraising proceeds a taxable source of income. However, you could still owe taxes, depending on how the funds were used and if anything was provided in exchange. If you are the recipient of a crowdfunding campaign, be sure to keep good records of contributions received and consult your tax advisor.
Let’s look at crowdfunding in general. Two key factors are important with regard to determining if there is a tax liability:
- What was the campaign organizer’s intent?
- Did the supporters receive goods and/or services in exchange for their contributions?
Intent and Exchange
If the organizer’s intent was to raise funds in exchange for goods and/or services, the raised funds are considered taxable business income by the IRS. For example, if an organizer wants to raise funds to kick-start the production of a musician’s new CD and he/she says you will receive a “free” copy of the CD for your contribution, the funds will be taxable to the organizer. If, instead, you receive an ownership interest in the business in exchange for your funds, this is considered a non-taxable contribution to the capital or equity of the business.
It is the responsibility of the crowdfunding site, or its third party processor (such as PayPal) to complete IRS Form 1099-K if total contributions exceed $20,000 and more than 200 transactions were made during the calendar year. However, if you receive a 1099-K, it does not necessarily mean that the contributions are taxable to you.
If the organizer’s intent was to raise funds to cover the costs of life events, medical expenses, etc. and no one received any goods and/or services in exchange for their contribution, the income would be considered a gift. Gifts (as mentioned above) are not considered income. For example, if an organizer wants to raise funds for the college expenses of a child who lost a parent, the contributions to the campaign would NOT be taxable.
Contributions made to crowdfunding sites are earmarked for a particular individual or organization and therefore are NOT tax-deductible (for donations to be tax-deductible, they must be made to a qualified charitable organization (“501(c)(3)” organization) and for the benefit of the general public, not for the benefit of a specific (named) individual or organization). If no goods or services were received in exchange, these contributions would be treated as gifts and would not be taxable to the recipient. However, if the donor exceeds the “annual gift tax exclusion” ($15,000 per donee per year), they may be required to file a federal gift tax return to report their gift.
If you are thinking of establishing a crowdfunding campaign, you should research your options on-line. Whether you are establishing a campaign or contributing to one, you may want to consult with your tax advisor.