Is Your GoFundMe Campaign Tax-Free?
Here’s What You Need to Know!

February 2, 2025

In today’s digital age, crowdfunding platforms like GoFundMe have made it easier than ever to raise money for personal causes, medical expenses, business ventures, and more. But while the idea of receiving donations online can be a game-changer, it’s essential to understand the potential tax implications that come with it. Whether you're setting up a campaign for yourself, a loved one, or a business, navigating the tax rules can save you from a financial headache down the road.

Is Money Raised Through GoFundMe Taxable?

The short answer: it depends. When you collect funds through GoFundMe or similar platforms, the tax treatment largely depends on how the money is used and the nature of the contributions.

• Personal Causes: If you’re raising money for personal reasons, such as covering medical bills, education, or unexpected expenses, the funds are generally considered a non-taxable gift. The IRS typically doesn’t tax gifts as long as the donor doesn’t receive anything in return.
• Business Ventures: If the crowdfunding is for a business or entrepreneurial venture, things get a bit more complicated. Money raised for business purposes may be considered taxable income. If donors receive something of value in exchange for their contribution, such as a product or service, the IRS might classify the transaction as a sale, making it subject to income tax.
• Employer Contributions: Contributions from an employer to a crowdfunding campaign for an employee are not considered gifts. These contributions should be reported as income on the recipient’s tax return.

 

The IRS’s Take on Crowdfunding

The IRS offers additional guidance on how crowdfunding distributions should be reported. According to federal tax law, gross income includes all income from whatever source derived unless specifically excluded by law. This means that unless your crowdfunding campaign meets certain criteria, the money you raise could be considered taxable income.

• Gifts vs. Income: The key factor is whether the funds were given out of "detached and disinterested generosity." If contributors don’t receive or expect anything in return, the funds might be classified as gifts, which are not taxable. However, not all crowdfunding contributions qualify as gifts, especially if the donors benefit in some way.
• Recordkeeping: It’s crucial to maintain accurate records of all transactions related to your crowdfunding campaign. This includes the amount raised, how the funds were used, and any correspondence with donors. Proper recordkeeping will help determine the taxability of the funds and ensure compliance with IRS regulations.
• Form 1099-K: Crowdfunding platforms or payment processors may be required to issue a Form 1099-K if your campaign reaches certain thresholds. This form reports the total amount of funds raised and is sent to both you and the IRS. If you receive a Form 1099-K, it’s essential to report the amount on your tax return and consult with a tax professional to understand your obligations.

 

Best Practices for Crowdfunding Campaigns

To avoid unexpected tax surprises, consider the following tips when running a crowdfunding campaign:

• Consult a Tax Professional: If you’re unsure whether the funds you raise are taxable, it’s wise to consult with a tax expert. They can provide guidance tailored to your specific situation and help you navigate the complexities of tax law.
• Keep Detailed Records: From the moment your campaign goes live, keep detailed records of all contributions and how the funds are spent. This will make it easier to determine whether the money is taxable and to defend your position if the IRS comes knocking.
• Understand the Platform’s Policies: Different crowdfunding platforms may have varying rules about how funds are reported. Make sure you understand the policies of the platform you’re using and how they align with IRS guidelines.

 

Final Thoughts

Crowdfunding can be an effective way to rally support for causes that matter to you, but it’s important to approach it with an understanding of the potential tax implications. By staying informed and keeping meticulous records, you can focus on the success of your campaign without worrying about tax complications down the road.

 

If you’re considering launching a crowdfunding campaign or have already started one, it’s never too late to seek professional advice. Contact us at Grants Pass Tax Service, and let’s make sure your fundraising efforts stay on the right side of the tax code.

Image by Annie Spratt