Following COVID and natural disasters over the more recent years, you may have heard a lot about or participated in crowdfunding campaigns to raise money to help someone in need.
According to Fortune Business Insights, the global crowdfunding market size is projected to grow from 1.41 billion USD in 2023 to 3.62 billion USD by 2030.
Whether you set up a crowdfunding campaign to raise money for someone or you were the recipient of the funds through one of the crowdfunding organizations like GoFundMe or Kickstarter, you may be wondering how setting up or receiving money through a crowdfunding campaign will impact your taxes.
Don’t worry, TurboTax has you covered and is here to answer some of the most popular questions we hear about crowdfunding and taxes like:
What is crowdfunding?
Crowdfunding is a way to raise money from groups of people through crowdfunding organizations like GoFundMe. The campaigns are often created on behalf of others for donations due to hardships and personal need. In some cases, people may also set up their own crowdfunding campaigns to raise money for their businesses like on Kickstarter.
If I set up a crowdfunding campaign for someone, are the funds received taxable to me or the recipient? Can I take a deduction for the amount given to the recipient on my taxes?
If you set up a crowdfunding campaign for someone, and received money on their behalf and gave them the money for a personal hardship or to fund their business, it would not be taxable to you.
If the contributors to the crowdfunding campaign receive goods or services for their contributions you or the recipient may receive a Form 1099-K from the crowdfunding organization. For tax year 2022, third party organizations processing credit card and app payments were still required to report payments processed through them if the recipient had 200 transactions and $20,000 processed. Under the American Rescue Plan, payments processed by third parties were supposed to be reported if they were more than $600 beginning in tax year 2022, but the new reporting requirement was delayed, and the requirement remained at 200 transactions and $20,000 for tax year 2022. IRS has not confirmed if the delay in the reporting requirement will be lifted, but the over $600 reporting requirement is supposed to begin in tax year 2023.
Whether the funds received by the recipient are taxable depends on why the funds were received. Typically you have to be a 501(c)(3) charitable organization to receive donations, but if the funds were raised to help pay for something like medical bills due to a hardship and the recipient uses the money for those purposes, they would not have to pay taxes on the money received.
The money can be considered a gift, which is tax-free for the recipient. The person giving the gift may face gift tax if the gift is over $17,000 in tax year 2023($16,000 in tax year 2022).
If the recipient received the funds through a campaign like Kickstarter to fund their business or project, the funds received may be considered taxable income unless the donors designate the funds as a gift or the recipient has a 501(c)(3) organization recognized by the IRS. One thing to keep in mind, is you can offset your business expenses against the income raised that you have to claim.
I donated to a crowdfunding campaign on Facebook. Can I take a deduction on my taxes?
Generally, you can only take a tax deduction if you make a donation to a 501(c)(3) charitable organization recognized by the IRS and you can itemize your tax deductions. If you donated to a crowdfunding campaign to help someone personally, you would not be able to take a deduction for the donation.
Depending on the amount given, you may need to pay gift tax if you consider the funds you gave to the recipient as a gift. You can give 17,000 per recipient in tax year 2023 (16,000 in tax year 2022) before you have to pay gift tax.
I received money raised through GoFundMe, is the money taxable?
If the money you received is to help you with a personal hardship like medical bills, it can be considered a gift. As long as the funds are used for that purpose it should not be taxable. You may receive Form 1099-K from the crowdfunding company reporting the funds and they will in turn report to the IRS if they also send you a Form 1099-K. If that is the case, you can include the amount indicated on your return as other income and back it out as an offset to the other income.
If, on the other hand, the donors receive goods or services for the money given to you, then what they received could be considered a sale and it would be taxable to you.
I gave money to Kickstarter for my friend’s business. Can I take a deduction on my taxes?
Money paid to a crowdfunding organization like Kickstarter to fund your friend’s business can not be deducted unless their business was a 501(c)(3) corporation. Your friend would also need to claim the income received for their business.
Don’t worry about knowing these tax rules. Whether you are the recipient of crowdfunding funds or you contributed to a crowdfunding fund, TurboTax will easily guide you through filing your taxes. Or meet with a TurboTax Full Service expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.