Generally, donations made to GoFundMe campaigns are considered personal gifts, and as such, are not taxed as income. 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. Principal Laura Da Fonseca shares if you are the recipient of a GoFundMe campaign be sure to keep good record of donations received and consult your tax advisor. In most instances, the organization will not report your donations as income at the end of the year, nor will they issue any tax documents.
Let’s look at crowdfunding in general. Two key factors are important with regard to tax liability:
- What was the campaign organizer’s intent?
- Did the supporters receive goods and/or services in exchange for their donations?
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 kickstart the production of a musician’s new CD and he/she says you will receive a “free” copy of the CD for your “donation”, the funds will be taxable to the organization. If however, you receive an ownership interest in the business in exchange for your funds, this is considered a nontaxable contribution to the capital of the business.
Some crowdfunding sites will issue a Form 1099-K to the individual or entity to whom the funds were transferred. It is the responsibility of the crowd funding site or the third party processor’s (Paypal.com, etc.) to complete the form. The general rule is that both the IRS and the organizer receive a copy of the Form 1099-K if more than $20,000 is involved and more than 200 transactions were made during the calendar year.
If the organizer’s intent was to raise funds to cover 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 college expenses for a family who lost their father/husband, the donation would NOT be taxable.
Because donations made to qualified charitable organizations, 501(c)(3) organizations, are for the benefit of the general public and are not intended to benefit a specific (named) individuals or organization, donations to these organizations are tax deductible to the taxpayer who made the donation. Contributions made to the crowd sourcing sites are earmarked for a particular individuals or organizations and are NOT tax deductible.
Donations made, that do not qualify as charitable deductions or where goods in services were not received in exchange, would be categorized as gifts. Gifts are not taxable to the recipient, however, if the donor’s gift exceeds the annual $15,000 per donee limit, the donor may have be subject to filing a gift tax return to report the gift.
Please note, if you are a business, proceeds are largely considered taxable income and should be reported in the year you receive it, unless the proceeds are in exchange for ownership in the entity. Since the proceeds were received in exchange for goods and services, the proceeds could be subject to income and sales tax. Consult your tax advisor on the filing requirements for the business.
For more information, contact us at 401-831-0200.