That money you donated to a GoFundMe? It probably isn’t tax-deductible
There has been no shortage of need during the pandemic. And to help meet it, friends, neighbors and customers have set up hundreds of thousands of crowdfunding campaigns.
GoFundMe estimates that an American has started a Covid-related fundraiser on its site every two minutes since March 2020.
But donors shouldn’t assume their contributions are tax deductible.
And fundraising organizers should not assume the money they have raised won’t be taxable.
How to know if a donation is deductible
Giving money to an online fundraiser to help those in need or to fund a creator’s project on platforms like Kickstarter is not going to be tax deductible unless the money raised is going to an IRS-designated charitable organization known as a 501(c)(3).
The world may have changed in 2020, “but the rules about charitable contributions have not,” said Jackie Perlman, tax principal & research analyst for The Tax Institute at H&R Block. “I have to be donating to a qualified 501(c)(3) charity. [Otherwise] no matter how poignant the cause may be, your donation still is not deductible.”
GoFundMe, one of the best known crowdfunding platforms, notes on its site that donations to a personal GoFundMe fundraiser are “generally considered to be personal gifts and are not guaranteed to be tax deductible.”
The one exception: If you contribute money to a cause at GoFundMe.org, the company’s registered 501(c)(3) public charity.
If you have questions about the contributions you’ve made to any online fundraising campaigns, check with a tax professional.
If you organize a fundraiser, keep excellent records
Crowdfunding organizers need to be very clear in their online pitch for funds about where the donations will go, what need is being met and how donors will not receive anything in exchange for the money they contribute.
Otherwise, the organizer could be hit with an unexpected tax bill.
The Hartford Courant recently reported that a middle school teacher had raised $41,000 on Facebook to help buy groceries for families in need, only to receive a 1099 tax form reporting the $41,000 as income to him, which made him think he had a big tax bill coming.
But while organizers may receive a 1099, that doesn’t necessarily mean they owe taxes on the money they raise.
Facebook’s policy as well as Kickstarter’s policy is to have their payment processor issue a 1099 to anyone who raises more than $20,000, according to the companies. GoFundMe told CNN Business it does not issue 1099 forms.
The good news: Providing the IRS with proper documentation to show that the money went to others in need is likely to exempt the organizer from owing taxes.
So keep meticulous records of how much your campaign raised and how the money was spent, especially if it was first deposited into your personal bank account before being given to the person or group for whom the donations were intended.
If you receive a 1099 for the money donated to your online campaign, “I’d report the amount raised on your 1040 and then back it out and attach a statement on your return explaining the circumstance,” Perlman said. For example, that the funds were raised for a third party, not you or your business, and that you did not receive a fee for organizing the fundraiser.
The money could be taxable to you if you provide the donors with a good or service in exchange for the money, Perlman said.
For instance, she said, if a small business owner creates a fundraiser for her own business and offers to provide something in exchange for donations (e.g., a discounted good or service in the future), that income — or a portion of it after she deducts business expenses — is likely to be treated as taxable to the owner.
The same goes if the organizer is accepting a fee to set up the online fundraiser from the person or organization in need, she added.
Regardless, before organizing any online fundraiser, check the platform’s policies and information on potential tax consequences both to you as the organizer and to those who donate to your campaign. If you have questions beyond the information provided by the platform, seek advice from a tax professional.