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Crowdfunding—raising money by asking a group of people to contribute to personal campaigns or business ventures—has become a popular way to help friends and family or generate capital for a business. But is money raised on platforms like GoFundMe, Kickstarter or Indiegogo taxable? The answer depends on who receives the money and what the money is used for.
Proceeds from personal crowdfunding aren't usually taxable if the money is donated without the donor receiving anything in exchange. Rules differ for businesses, however. If goods or services are awarded to people who contribute to a crowdfunding campaign, you may owe taxes to the IRS and your state taxing authority. Keep reading to learn more.
How Is Crowdfunding Taxed for Individuals?
If you've used crowdfunding to ask friends and family to chip in for medical bills or another personal cause, contributions are generally considered gifts and are not taxable. The IRS considers donations gifts if they are made without the expectation of receiving anything in return.
You are not responsible for paying taxes on money you raised for someone else's benefit. Say you organized a GoFundMe to help a neighbor whose house burned down in a wildfire. Even if you collected funds, as long as you distributed the money to your neighbor—and kept a record of your transactions—you do not owe taxes on the money.
Save your records if you received money from a crowdfunding campaign or organized one on someone else's behalf. You'll want to be able to show the IRS who donated to the campaign, how much you raised, who ultimately received the money and how it was distributed.
Be aware of special tax circumstances. If your employer donated to your personal crowdfunding campaign, for example, their contribution may not be considered a gift in the eyes of the IRS. Generally, donations from your employer should be included in gross income on your personal tax return.
Is Crowdfunding for a Business Taxed?
Crowdfunding to help launch a business or project is generally considered business income. The same may be true if your personal crowdfunding campaign provides goods or services as incentives to contribute—for example, if you offer a T-shirt or dinner with the organizer to people who contribute a certain amount of money. Also bear in mind:
- Business contributions may not be taxable if you offer equity in your business instead of goods or services.
- You may be able to offset crowdfunding income with business expenses, including startup expenses if your business is new.
- Depending on your state, you may be on the hook for sales tax in addition to state income taxes on crowdfunded money.
Crowdfunding for business can be complicated. Working with a tax pro and/or accountant can help ensure you report income correctly, account for all your legitimate business expenses, meet state tax requirements (if any) and comply with IRS rules.
You may also want to consult a tax advisor if you organized or received money from a personal crowdfunding campaign that offered goods or services as rewards.They can help you determine whether you need to report your crowdfunding income and how to report it correctly.
How Do You Prepare for Tax Time After Crowdfunding?
It's a good idea to document your crowdfunding activity, whether or not you believe your funds are taxable. If you're audited by the IRS—independent of crowdfunding—you may have to explain any personal funds you received, where they came from and why you received them. If you raised money for your business on a site like Kickstarter or Indiegogo, you'll need to account for crowdfunding income on your tax return.
Watch for Form 1099-K
Companies that provide digital payments—including PayPal, Venmo, Cash App, Stripe and various crowdfunding sites—are required to report payments totaling $600 or more to the IRS using Form 1099-K. This form is for business payments only. If your crowdfunding campaign raised $600 or more in business income, you may receive a 1099-K from the crowdfunding platform or its payment processor.
According to the IRS, crowdfunding sites and their payment processors are not required to issue 1099-Ks if a campaign was for personal use and did not provide goods or services in exchange for contributions. On the other hand, you may get a 1099-K if your campaign meets the IRS threshold and the contributions you received do not qualify as gifts.
Report Crowdfunding Income on Your Taxes
Business income from crowdfunding should be reported as part of gross receipts on your business tax return or Schedule C for self-employment income.
Receiving a 1099-K doesn't necessarily mean your crowdfunding income is taxable. If you've received a 1099-K in error—or you find errors on your 1099-K—contact the company that sent you the form and ask them to issue a correction. If you and your tax advisor decide your 1099-K income does not need to be reported on your return, be prepared to explain your reasoning to the IRS.
Keep Records for At Least Three Years
Whether your funds are taxable as business income or not, you'll want to save records of your crowdfunding activity in case the IRS has questions. Retain any 1099-K forms you receive as well as bank or credit card statements showing deposits and transfers, and campaign records from your crowdfunding platform.
The Bottom Line
Whether you owe taxes on crowdfunding depends on how you raise the money and how you use it. Personal contributions that do not involve an exchange for goods or services are generally considered non-taxable gifts by the IRS. Business fundraising is typically considered income and will be taxed as such.
Crowdfunding organizers and recipients should keep careful records of their crowdfunding activities. When in doubt, consider working with a tax advisor to help puzzle out whether your funds are taxable, how to report fundraising on your tax return and how much tax you owe. If you're about to launch a crowdfunding campaign, try to account for taxes (if any) when you're deciding how much money to raise.