GoFundMe, Kickstarter, and other personal fundraising websites have spread like digital wildfire – their purpose being to assist in raising funds for different campaigns. You’ve probably donated to a cause or know someone who started a page to raise money for a bucket list trip, rebuild a home after a natural disaster, or start a new business. You may have even started a campaign yourself.
You may think the money collected on these sites is tax-free. Well, you’re wrong – and right.
Crowdfunding services have to report to the IRS campaigns that total at least $20,000 and 200 transactions. Money collected from crowdfunding is considered either income or a gift.
This is where things get a little tricky. If money donated is not a gift or investment, it is considered taxable income. Even a gift could be subject to the gift tax, but that tax applies only to the gift giver.
These are donations made without the expectation of getting something in return. Think of all those Patriots’ fans who gave money to GoFundMe to help defray the cost of quarterback Tom Brady’s NFL fine for Deflategate. Those fans aren’t expecting anything in return – except maybe some satisfaction -- so their donations are considered gifts. Under IRS rules, an individual can give another individual a gift of up to $14,000 without tax implications. So, unless a Brady fan is particularly generous, his or her GoFundMe gift won’t be taxed.
Now consider that same Brady fan donating $300 to a Patriots’ business venture. If the fan receives stock or equity in the company in return for the donation, this is considered an investment and is not taxable . However, if the business owner does not offer stock or equity in the company, the money donated could be considered business income and the recipient would need to report it on a tax return.
Crowdfunding has been an effective tool for raising money, but before you decide to open that Kickstarter account, it’s wise to consult a tax professional.
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