• Sidney Valencia

Client Update: Crowdfunding and Taxes

People may use crowdfunding to raise money for medical expenses, emergencies, business needs or for charity. Crowdfunding campaign organizers should know that money raised through crowdfunding could be taxable income.


Is crowdfunding income taxable? Gross income includes all (income from all sources) unless the income is specifically excluded from gross income by law. For example, gifts are generally not considered gross income to the person receiving the gift.


Crowdfunding income may be considered a nontaxable gift, for example, if:

  • A crowdfunding organizer is raising money on behalf of others gives all the money to the person(s) the crowdfunding campaign was set up to benefit, then the money raised is not included in the organizer's income.

  • Donors give money to a crowdfunding campaign out of generosity and without expecting anything in return, then the donations are gifts, and gifts aren't included in the recipient's gross income.

Note. Anyone setting up a crowdfunding campaign should consult a tax professional for advice on how to set it up.


Information returns. Whether or not money raised through crowdfunding is taxable income, crowdfunding sites are required to file with the IRS a Form 1099-K, Payment Card and Third-Party Network Transactions, reporting the amount raised when:

  • The amount raised is more than $600, or

  • People donating to the crowdfunding campaign receive goods or services for their contributions.

If the crowdfunding site files a Form 1099-K, it will send a copy to the person it paid the funds to (usually the organizer or the beneficiary of the fundraiser).


Note. The person receiving a Form 1099-K from a crowdfunding campaign should include the amount shown on the Form 1099-K on their tax return. If the amount isn't taxable (because it qualifies as a gift, for example) the recipient should explain why it isn't taxable in a statement attached to their return.


Recordkeeping for crowdfunding campaigns. Anyone thinking about organizing a crowdfunding campaign (for example for back-to-school supplies) should keep careful records about the campaign and the disposition of any funds raised. The IRS has information about what kinds of records should be kept and for how long.


Links

*This article was not written by Hay & Associates, An Accountancy Corporation. We do not take credit for the article written above.*