Crowdfunding started as a way for entrepreneurs to fund new enterprises. Then charities started getting in on the act through platforms like GoFundMe and Kickstarter. This has resulted in grassroots appeals for worthy causes around the country.
But what are the tax implications? It depends on whether you're giving or receiving charitable donations.
Giving charitable donations
Typically, a crowdfunding effort will be devoted to helping a specific individual or a class of individuals. For instance, you may be raising money to provide assistance to a seriously ill person or a group of children in need. In these cases, your generosity is appreciated, but the tax benefits are nonexistent.
To be deductible as a charitable contribution, the donation must be made to a qualified charitable organization to benefit a broad base (you can find a list of qualified organizations on the IRS website). It can't be just for one person. And even when crowdfunding payments qualify for a deduction, other restrictions may apply.
Finally, your contribution may be treated as a taxable gift, although amounts up to $15,000 can be sheltered by the annual gift tax exclusion.
Receiving charitable donations
The tax aspects are even more complicated for recipients. Assuming that the transfer doesn't qualify as a deductible charitable contribution, it'll generally be considered as taxable income to the recipient, unless it is deemed to be a gift.
Another issue is who is the recipient of the money - the organizer or the ultimate beneficiary? Previously, the IRS has indicated that the beneficiary is the recipient if the organizer is merely acting an agent. This is important when determining tax obligations.
The optimal approach may be to treat the transfer as a gift that qualifies for the gift tax exclusion and isn't taxable to the recipient. In this case it might make sense to file a gift tax return, even if one isn't required.
The law is still evolving, so call if you have questions about your situation.
"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area.
Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at firstname.lastname@example.org.
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.
Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
Your comment will be posted after it is approved.
Leave a Reply.
To better serve our clients and friends, to keep you up-to-date and informed, our blog is a resource for tax tips and overall accounting related articles. We hope you find this useful!