Understanding If GoFundMe Proceeds Are Taxable and How to Handle It

GoFundMe proceeds can be a lifesaver for those in need, but did you know that they may also come with some tax implications? According to the IRS, GoFundMe proceeds are considered taxable income for the recipient.

The taxability of GoFundMe proceeds depends on the purpose of the campaign and the type of funds raised. If the campaign is for a medical expense, the funds are not considered taxable income. However, if the campaign is for a non-medical expense, the funds are considered taxable income.

As a general rule, GoFundMe proceeds are considered taxable income if the recipient uses them for personal expenses, such as paying off debt or taking a vacation. However, if the recipient uses the funds for a medical expense, such as paying for surgery or medication, the funds are not considered taxable income.

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In most cases, funds received through a donation-based site like GoFundMe are not taxable, as they are considered personal gifts.

These gifts aren't taxed as income, which can be a relief for those in need. The IRS considers them as such, unless the donor received something of value in return for their donation.

If you provide something of value in exchange for donations, these can be considered taxable. This is especially true if you raise money through a crowdfunding campaign and the donor receives something of value.

The recipient won't typically need to pay taxes on donations to a personal crowdfunding campaign, as they will likely be considered personal gifts subject to gift tax rules.

If you raise money for a qualified charitable organization, those funds are generally considered tax-deductible. On the other hand, if you make contributions to a personal crowdfunding campaign, those donations aren't likely eligible for lowering your tax bill.

If your crowdfunding campaign raised more than a certain amount of money and contributors received something in return for their donation, the fundraising platform will send you a tax statement called a 1099-K form the following year.

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Tax deductibility is a crucial aspect to consider when making contributions through GoFundMe.

Contributions to qualified charitable organizations can be tax-deductible, but only if the organization is a registered 501(c)(3) non-profit.

You can check if an organization is qualified by using the IRS Exempt Organizations Select Check tool.

Crowdfunding donations may or may not be tax-deductible, depending on the purpose of the campaign.

If you donate to a personal crowdfunding campaign, the donations are generally considered personal gifts and not tax-deductible.

However, if you donate to a campaign run by a qualified 501(c)(3) organization, the donation may be tax-deductible.

Some crowdfunding websites, like GoFundMe, make it easier to distinguish between personal campaigns and fundraisers run by qualified organizations.

The IRS requires that donations be delivered to a qualified organization to be considered tax-deductible.

If you're unsure about the tax deductibility of a donation, it's always best to check with the organization or consult with a tax professional.

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Here's a summary of the key points to keep in mind:

The IRS requires crowdfunding sites like GoFundMe to file a Form 1099 with the IRS for campaigns that receive over $20,000 in donations or over 200 donations.

Crowdfunding is not taxable, but you still need to report it on your tax return.

You should record the 1099 income on your tax return as other income, then report an offsetting reduction for the same amount.

This is to avoid confusion, as a 1099 indicates taxable income, but crowdfunding is not taxable.

The IRS may send a tax notice if you fail to correctly file your crowdfunding donations, as they did with a cancer survivor who received a 1099 for $19,000.

Starting in 2023, companies that provide digital payments, including 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, not personal use.

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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.

GoFundMe may send a 1099-K tax statement if you raised a significant amount of money, breaking out the amount of money you received, less anything given to contributors in return.

The IRS is phasing in new 1099-K reporting requirements, with a threshold of $5,000 for the 2024 tax year and $2,500 for the 2025 tax year.

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If you raise money through a crowdfunding platform for personal causes, such as medical bills or education, those funds are generally considered a gift and not taxable, as long as the donors didn't receive anything in return.

You'll receive a tax statement called a 1099-K form if your campaign raised over a certain amount and contributors received something in return for their donation. This form will outline exactly how much money you made, and the IRS gets a copy too.

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It's essential to keep good records and receipts, as documentation can provide proof to the IRS about the taxability of your campaign and the money earned through it. You should keep a paper trail of the campaign and how the funds were dispersed for at least three years.

If you're audited by the IRS, you may have to explain any personal funds you received, where they came from, and why you received them. This is why documenting your crowdfunding activity is crucial, even if you don't think your funds are taxable.

Business income from crowdfunding should be reported as part of gross receipts on your business tax return or Schedule C for self-employment income.

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You'll want to keep good records of your GoFundMe campaign, including the 1099-K form you'll receive from the fundraising platform if your campaign raised over a certain amount of money. This form will outline exactly how much money you made and will be sent to the IRS as well.

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Keep a paper trail of your campaign and how the funds were dispersed for at least three years. This will provide proof to the IRS about the taxability of your campaign and the money earned through it.

Documentation can be as simple as bank or credit card statements showing deposits and transfers, as well as campaign records from your GoFundMe platform.

If you have questions about a campaign's tax implications, it's never a bad idea to call in a tax professional for a second opinion.

To keep proper records, you'll want to save your 1099-K forms, as well as any receipts or records of your campaign activity.

Here are some examples of documentation you may need to keep:

Remember, it's essential to keep accurate and detailed records of your campaign activity in case the IRS has questions.

Lowering your tax bill through crowdfunding donations is possible, but it depends on the charitable contribution. If you donate money through a crowdfunding campaign to benefit a qualified charitable organization, those funds are generally considered tax-deductible.

Donations made to crowdfunding campaigns to support an individual aren't tax deductible unless they meet the usual requirements to qualify as a tax deduction. This means that if you're donating to a personal crowdfunding campaign, those donations aren't likely eligible for lowering your tax bill.

However, if you raise money for your business on a site like Kickstarter or Indiegogo, you'll need to account for crowdfunding income on your tax return. This is because crowdfunding income is considered taxable income.

It's also worth noting that donations to crowdfunding campaigns are generally considered personal gifts subject to gift tax rules, unless they meet the usual requirements to qualify as a tax deduction.

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