Crowdfunding is a popular way to raise money online. People often use crowdfunding to fundraise for a business, for charity, or for gifts. It's important to know that money raised through crowdfunding may be taxable.
Some money raised through crowdfunding may be considered a gift.
Under federal tax law, gross income includes all income from any source, unless it's excluded from gross income by law. In most cases, gifts aren't included in the gross income of the person receiving the gift. Here's what people involved in crowdfunding should know:
- If a crowdfunding organizer is raising money on behalf of others, the money may not be included in the organizer's gross income, as long as the organizer gives the money to the person for whom they organized the crowdfunding campaign.
- If people donate to a crowdfunding campaign out of generosity and without expecting anything in return, the donations are gifts. Therefore, they will not be included in the gross income of the person for whom the campaign was organized.
- However, not all contributions to crowdfunding campaigns are gifts and may be taxable.
- When employers give to crowdfunding campaigns for an employee, those contributions are generally included in the employee's gross income.
Taxpayers may want to consult a trusted tax pro for information and advice regarding how to treat amounts received from crowdfunding campaigns.
People may receive Form 1099-K for money raised through crowdfunding.
The crowdfunding website or its payment processor must file Form 1099-K, Payment Card and Third Party Network Transactions with the IRS if:
- The amount raised is more than $600
- Contributors to the crowdfunding campaign receive goods or services for their contributions.
If a Form 1099-K is filed, the crowdfunding organizer or the beneficiary of the fundraiser will receive a copy, depending on who received the funding directly from the crowdfunding website.
Receiving a Form 1099-K doesn't automatically mean the amount shown is taxable. However, if the taxpayer doesn't include the distributions from the form on their tax return, the IRS may contact the recipient for more information. The recipient may need to explain why the crowdfunding distributions weren't reported.
Recordkeeping for money raised through crowdfunding.
People who run crowdfunding campaigns or receive money from one should keep careful records about the campaign and the disposition of funds for at least three years.
If you have any questions regarding accounting, domestic taxation, essential business accounting, international taxation, IRS representation, U.S. tax implications of Real Estate transactions or financial statements, please give us a call at 305-274-5811.