Tax Considerations for Crowdfunding: What You Need to Know Before Raising Funds for Personal Causes

Crowdfunding has become a popular method to raise funds for personal causes, with platforms like GoFundMe making it easier than ever. However, there are important tax considerations to keep in mind when using these platforms.

The IRS considers donations to be nontaxable gifts, as long as the money is not given in exchange for something of value. This means that funds raised through crowdfunding for personal causes, such as medical bills or educational expenses, are generally not taxable.

However, money raised for business ventures or when donors receive something of value in exchange for their contribution can be considered taxable income. Additionally, donations made to crowdfunding campaigns are typically not tax-deductible, as they must be made to qualified 501©(3) tax-exempt organizations to qualify for a tax break.

If donors give over $16,000 in a year to a non-qualifying charity, they may be required to file a federal gift tax return.

If a crowdfunding campaign raises over $600 and contributors receive something in exchange for their donation, the platform will send a 1099-K form that must be reported to the IRS. It’s important to keep good records and receipts for at least three years and consult with a tax professional if there are any questions about a campaign’s tax implications.

A news article by Sabrina Parys of Nerd Wallet published on March 9, 2023, contributed to this report.