Crowdfunding has grown in the last 20 years raising billions of dollars from hundreds of projects being launched on a daily basis. Crowdfunding is the practice of soliciting financial contributions from a large number of people over the internet. These contributions can be used for a verity of projects. By doing this individuals and organizations can gain access to funds outside of the traditional sources like banks.
Lets say you were involved in a terrible crash and needed to raise money to cover expenses so your sister opens a GoFundMe account online. You raise enough money thinking its a tax free gift. You don’t report the income on your tax return. Later on the IRS says you owe money in taxes, consisting of back taxes, penalties and interest.
So is the money you receive from a GoFundMe fundraising campaign taxable income or tax free as a gift? Money raised in a GoFundMe account for the benefit of someone in need isn’t deductible as a charitable contribution. That shouldn’t effect whether the funds raised are taxable to the recipient. For another example think of a parent, parents aren’t a tax exempt charity. Yet there is no question that cash gifts from a parent to a child are tax free to the child. A GoFundMe account meets the definition of gifts under the Internal Revenue Code and would not be taxable to the recipient. But that doesn’t mean every donation qualifies as a gift. This is seen differently depending on what the donations are for. Money raised to support a profit motive, such as business are taxable to the recipient. But donations made to support disadvantaged individual would be considered a tax-free gift.
Source: The Tax Book Photo: Pexels
Rhonda A. Mannes,