Do You Have To Pay Taxes From Money Collected From Gofundme

GoFundMe Donations May Have Revenue enhancement Consequences

October 1, 2020

By Samantha Barbieri and John Evans

GoFundMe was launched in May 2010 in an effort to create a platform for individuals to fund their personal causes. Although at that place were several other crowdfunding platforms available at the time, the existing platforms focused mainly on funding for the creation of businesses or tangible products.  Different its predecessors, GoFundMe focused on making financing bachelor for personal needs, such every bit medical expenses and tuition.  This focus on individual causes has contributed to GoFundMe becoming the largest crowdfunding platform on the cyberspace.  The ability to contribute direct to people in need, every bit opposed to their business products, has also acquired confusion around the deductibility of such amounts as charitable contributions.

GoFundMe operates every bit an administrative platform, substantially acting as the middleman between individuals needing financial aid and the donors who are willing to assist. GoFundMe enables individuals in need to plant their own campaigns to fundraise for their personal causes.  They can create their own websites, upload photos and videos, and then share the website through email and various social media platforms.  Other individuals may so use the platform to donate to the campaigns of their choice.  GoFundMe is not a broker, financial establishment or 501(c)(three) charitable organization.  It just facilitates the means for individuals to receive funds from unrelated donors.

On GoFundMe, y'all can raise money for an individual, a grouping of individuals or an organization.  At that place are besides two different types of campaigns available: either a standard GoFundMe campaign or a Certified Clemency campaign.  With a standard GoFundMe entrada, virtually organizers are individuals, and they tin withdraw the funds raised for their crusade and deposit them in their own personal banking company accounts nonetheless oft they cull.  Donations made towards standard GoFundMe campaigns are generally not eligible as a tax deduction as they are given to individuals and not registered charities.

Certified charity campaigns raise coin for a 501(c)(3) or other registered charity.  Dissimilar with a standard GoFundMe campaign, the funds raised are not collected past the campaign organizers, but rather they are distributed directly to the certified clemency through the use of PayPal Giving Fund.  In club to create a certified charity entrada, the charity's proper noun or EIN needs to exist provided to GoFundMe.  Just donations made towards a certified clemency campaign are considered to be taxation-deductible and will be issued tax receipts at yr end by PayPal Giving Fund.

Since its inception, GoFundMe has facilitated over 120 1000000 donations, for a total of over $9 billion in funding.  This amount of money being exchanged is bound to grasp the attending of the IRS.  Surprisingly, at that place has been very fiddling guidance issued past Congress and the IRS in relation to crowdfunding.

This lack of guidance has acquired quite a flake of disparity for both donors and donees when it comes to the tax reporting of GoFundMe transactions.  GoFundMe, being merely the administrative platform, will not report donations as income or issue whatsoever tax documents to donors or donees.  Mostly, the funds raised through GoFundMe are candy by a third-party system, such every bit Pay Pal.  Per IRS requirements, the third-political party payment network must upshot a Form 1099-Yard when the aggregate number of transactions exceeds 200 and the total value exceeds $20,000.  Although reported on Form 1099-G, these amounts are generally considered personal gifts and would exist excludable from a taxpayer's gross income.

In social club to determine proper tax treatment for both the contribution and the receipt of funds, one must wait dorsum to existing tax police force.  What is important to note for donees is that annihilation reported to the IRS on a 1099 volition likely atomic number 82 to a matching notice if not properly reported past the recipient.  For example, a woman in Omaha received an approximately $nineteen,000 revenue enhancement pecker from the IRS a twelvemonth afterwards she raised $50,000 on GoFundMe.  The woman claimed that all funds she received were non-taxable gifts, and that she used the expenses for her medical treatments after a car crash.  Even if this is true, she is now in a lengthy dispute with the IRS to prove this.  Although donations received from GoFundMe campaigns are more often than not not taxable to the recipients, if the IRS issues a notice relating to those funds, the burden of proof then falls on the taxpayer.  To go ahead of any bug with the IRS, recipients should report all GoFundMe proceeds equally "Other Income," and then separately evidence a reduction of that corporeality along with an caption.

Crowdfunding contributions fall into a very gray tax area, and one of the only sources of IRS guidance is Private Letter Ruling 2016-0036.  In this ruling, the IRS provides that a gift arises from "detached generosity" and contains no "quid pro quo."  It continues to state, however, that a voluntary transfer without a "quid pro quo" is non necessarily a gift for federal taxation purposes.  Therefore, even this letter ruling does non offer much guidance for taxpayers and taxation professionals.  The decision to exist fatigued from this private alphabetic character ruling is that the tax treatment of whatsoever crowdfunding income and deductions tin can just exist determined after conscientious evaluation of the specific facts and circumstances.

Although the bulk of contributions made through GoFundMe are below the gift taxation threshold, there are scenarios in which individuals are contributing pregnant amounts of money.  In these cases, it is important to keep in listen the IRS reporting requirements for gifts.  Donors who contribute more the yearly gift exclusion amount to an private ($15,000 for single taxpayers and $30,000 for married taxpayers filing jointly for the 2020 tax year) should ensure that they are filing the required gift revenue enhancement render.  There are exceptions to the gift taxation requirement when amounts are paid for medical and educational expenses.  However, the exception only applies when the money is contributed directly to the qualified medical or educational institution.  Although education and medical expenses are 2 of the most common causes for GoFundMe donations, the money rarely goes straight to the qualified establishment.

Contempo changes in tax police have significantly reduced the corporeality of expenses that private taxpayers are eligible to claim as deductions.  Charitable contributions remain one of the few important deductions that tin help significantly subtract your federal liability.  Therefore, it is essential to understand that non all coin contributed to a personal crusade, no affair how charitable it may seem, is deductible in the eyes of the IRS.  With the continued rise of social media and the ability to connect with strangers virtually, the use of GoFundMe and other crowdfunding platforms is expected to increase.  As funding continues to abound, the IRS will likely pay more attention and increase reporting requirements for these transactions.  Until further guidance is issued, information technology is important to maintain records of your crowdfunding contributions and receipts and consult with your tax professional on the implications.

Source: https://www.markspaneth.com/insights/industry/industry/gofundme-donations-may-have-tax-consequences

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