This Article Reprinted with permission of NerdWallet,
Crowdfunding organizations, such as GoFundMe, have made it easier than ever to raise and collect money for personal causes.
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If you found yourself at the helm of a campaign last year, or if you set up a fundraiser for someone else, chances are meeting your donation goal was top of mind. But there are also some important tax considerations when you’re ready to file.
The nature of your campaign and the way you raise money play a big role in whether the IRS will consider the money you raise to be taxable. So, if you want to avoid headaches at tax time, knowing the rules helps.
Is there tax on crowdfunded money?
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According to the IRS, donations may be considered non-taxable gifts for tax purposes. However, you may owe taxes on the money raised in a crowdfunding campaign for a few reasons:
The same rules apply for money you set up on behalf of another person, as long as the money was given to them as promised.
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If you’re raising money for a business venture, things can quickly become more complicated, so it may be a good idea to work with a tax professional if you have any doubts about the tax worthiness of your fundraiser. .
plus: GoFundMe fundraising for college tuition is up more than 50% over the past year
Is GoFundMe Tax-Deductible?
On the other side of the aisle, those who donate to crowdfunding campaigns may be wondering whether their generosity could entitle them to a tax deduction. Answer? Generally not.
That’s because the IRS has strict rules about what kind of charity a tax deductibility,
In order to retain the tax break for giving, the agency requires that your donation be made to a qualified 501(c)3 tax-exempt organization. If you have questions about the tax deductibility of donations, The IRS Has a Handy Tool Too Which can help you quickly find and locate qualified organizations.
Some crowdfunding websites also make it easy to differentiate between an individual campaign and fundraisers run by 501(c)3 organizations. For example, GoFundMe has a separate landing page for campaigns run by charitable organizations, and Kickstarter encourages donors to reach out directly to project creators to confirm that a donation is tax-deductible or No.
Too IRS audits black taxpayers at far higher rates, study says
Do I need to pay gift tax on donated money?
If you donated more than $16,000 in 2022 (or $17,000 in 2023) to a crowdfunding campaign that isn’t run by a qualifying charity, be aware that you could be on the hook for filing a federal gift tax return. Doesn’t mean you have to pay for it federal gift tax Some people actually pay gift taxes – but you may need to report your generosity to the IRS at tax time.
Too Dear Tax Guy: Our accountant charged $486 for a simple gift-tax return. Why would it cost so much?
Which crowdfunding tax documents do I need?
If your crowdfunding campaign raises more than $600, and if contributors received anything in return for their donation, the fundraising platform will probably send you a tax statement called a tax statement. 1099-K Forms It outlines how much money you have earned. Remember that you’re not the only recipient of this form—the IRS gets a copy, too—so this should be enough to wash away any thoughts of not reporting income when you file your taxes.
Like all things tax, keeping good records and receipts is essential. Documentation can provide proof to the IRS about the taxability of your campaign and the money earned through it.
check out: Dear Tax Guy: I plan to make $6,000 selling stuff on eBay. Can I put it into an IRA instead of paying taxes?
The agency urges anyone starting or running a fundraising campaign through crowdfunding to keep a paper trail of the campaign and how the money has been disbursed for at least three years. And if you have questions about the tax implications of the campaign, it’s never a bad idea to call a tax professional for a second opinion.
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Sabrina Parris writes for NerdWallet. Email: [email protected]
