CROWDFUNDING- CAN YOU DEDUCT IT? DO YOU HAVE TO CLAIM IT AS INCOME?
8/3/2016
Nora Tellifson, CPA
With the proliferation of crowdfunding sites, these questions are coming up more often, and as a CPA, I frequently see amounts paid to GoFundMe listed as a charitable donation. And while donating to many of these causes is very charitable, I’m sorry to tell my clients that most of the time, it’s not a deductible contribution in the eyes of the IRS.
Let’s take it from the side of the donor first. In the case of GoFundMe, most of the fundraising campaigns are classified as personal campaigns and funds are raised for personal situations—medical bills associated with an accident or illness, tuition, a home purchase, a wedding. Most GoFundMe donations will be considered nontaxable gifts to the recipient with no tax implications for either party. In 2016, you can gift up to $14,000 to a person, and you don’t need to file a gift tax return. In fact, you can gift $14,000 to 100 different people and still have no tax implications for anyone involved unless you give more than $14,000 to any individual. If you give more than $14,000 to any individual, then you will need to file a gift tax return and chip away at your lifetime gift exclusion amount which currently stands at $5.45 million. (If you would like to donate more than $14,000 to a GoFundMe campaign, hold on a moment while I set mine up, and I will send you the link!)
However, there are GoFundMe Certified Charity campaigns in which the donation is guaranteed to go to a registered 501c3 nonprofit organization, and those donations are tax deductible. These GoFundMe campaigns will have a “certified charity” badge on the web page, and they will send you a receipt showing your donation is tax deductible.
Other crowdfunding platforms tend to be more business or project oriented (e.g., Kickstarter and Indiegogo). These campaigns generally raise funds for entrepreneurial ventures, new inventions, and artistic pursuits. From the donor’s angle, most of these are still going to be considered personal gifts, subject to the limits we already talked about.
Now let’s look at it from the recipient’s side. The income side of the crowdfunding issue is decidedly less clear, and the IRS has only recently begun issuing some guidance on this. If the donation fits the description of a nontaxable gift under those limits above, and you don’t give your donors anything in exchange, there are no tax consequences. However, if you give your donors something in exchange for their donation, you may have income to claim. Let’s say you raise funds to create a new product that’s going to sell for $100 per item. If you give your donors a nominal item—say a key chain with your new logo—no problem, those donations were just nontaxable gifts you received. However, if your donors averaged $100 contributions and you give them your new item that has a market value of $100, then that doesn’t look like a gift anymore—it looks like you made a sale which is income you would report for your new business. Another consideration is that if you receive over 200 transactions worth more than $20,000 through any single financial intermediary (e.g., when contributions are made online), you will be issued a 1099-K, and the IRS will get a copy too. This could at least raise questions and give you a headache.
As crowdfunding continues to grow in popularity, I expect these rules to become more defined and evolve. The SEC is currently developing final regulations whereby investors could participate in equity based crowdfunding and receive an ownership interest in exchange for their donation. So stay tuned, and as always, check with your tax advisor if you have questions before embarking on any new business venture!
Nora Tellifson, CPA
With the proliferation of crowdfunding sites, these questions are coming up more often, and as a CPA, I frequently see amounts paid to GoFundMe listed as a charitable donation. And while donating to many of these causes is very charitable, I’m sorry to tell my clients that most of the time, it’s not a deductible contribution in the eyes of the IRS.
Let’s take it from the side of the donor first. In the case of GoFundMe, most of the fundraising campaigns are classified as personal campaigns and funds are raised for personal situations—medical bills associated with an accident or illness, tuition, a home purchase, a wedding. Most GoFundMe donations will be considered nontaxable gifts to the recipient with no tax implications for either party. In 2016, you can gift up to $14,000 to a person, and you don’t need to file a gift tax return. In fact, you can gift $14,000 to 100 different people and still have no tax implications for anyone involved unless you give more than $14,000 to any individual. If you give more than $14,000 to any individual, then you will need to file a gift tax return and chip away at your lifetime gift exclusion amount which currently stands at $5.45 million. (If you would like to donate more than $14,000 to a GoFundMe campaign, hold on a moment while I set mine up, and I will send you the link!)
However, there are GoFundMe Certified Charity campaigns in which the donation is guaranteed to go to a registered 501c3 nonprofit organization, and those donations are tax deductible. These GoFundMe campaigns will have a “certified charity” badge on the web page, and they will send you a receipt showing your donation is tax deductible.
Other crowdfunding platforms tend to be more business or project oriented (e.g., Kickstarter and Indiegogo). These campaigns generally raise funds for entrepreneurial ventures, new inventions, and artistic pursuits. From the donor’s angle, most of these are still going to be considered personal gifts, subject to the limits we already talked about.
Now let’s look at it from the recipient’s side. The income side of the crowdfunding issue is decidedly less clear, and the IRS has only recently begun issuing some guidance on this. If the donation fits the description of a nontaxable gift under those limits above, and you don’t give your donors anything in exchange, there are no tax consequences. However, if you give your donors something in exchange for their donation, you may have income to claim. Let’s say you raise funds to create a new product that’s going to sell for $100 per item. If you give your donors a nominal item—say a key chain with your new logo—no problem, those donations were just nontaxable gifts you received. However, if your donors averaged $100 contributions and you give them your new item that has a market value of $100, then that doesn’t look like a gift anymore—it looks like you made a sale which is income you would report for your new business. Another consideration is that if you receive over 200 transactions worth more than $20,000 through any single financial intermediary (e.g., when contributions are made online), you will be issued a 1099-K, and the IRS will get a copy too. This could at least raise questions and give you a headache.
As crowdfunding continues to grow in popularity, I expect these rules to become more defined and evolve. The SEC is currently developing final regulations whereby investors could participate in equity based crowdfunding and receive an ownership interest in exchange for their donation. So stay tuned, and as always, check with your tax advisor if you have questions before embarking on any new business venture!
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