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What to know about crowdfunding and taxes

Posted on September 19, 2022

Crowdfunding has become a fairly popular way to raise money online. But no matter what you may be crowdfunding for, it’s important to know that money raised through crowdfunding may be taxable.

How do you know what funds are taxable? 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 are not included in the gross income of the person receiving the gift. Here’s how to know the difference, according to the IRS:

  • 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.
  • When employers give to crowdfunding campaigns for an employee, those contributions are generally included in the employee’s gross income.

What about Form 1099-K 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.

However, receiving a Form 1099-K doesn’t automatically mean the amount shown is taxable. If the taxpayer doesn’t include the distributions from the form on their tax return, the IRS has the right to contact the recipient for more information.

It all boils down to good record-keeping

The IRS and your CPA love good record-keepers! It’s to your benefit to know the IRS regulations, and keep thorough records for at least three years.

Got a question about your involvement in crowdfunding or fundraising? Call us and we’ll get you the info you need.