Crowdfunding platforms such as GoFundMe have made it easy to donate to your favorite cause or someone in need. If you’ve donated, you’ll need to know the deduction rules.
• Charitable contributions allow the donor to lower their tax bill in the year of contribution if made to qualified charities.
• Crowdfunding campaigns that gather donations for personal use are generally considered personal gifts and are thus not subject to taxes for the recipient.
• If you gather more than $600 through a crowdfunding campaign on a platform like GoFundMe, you will likely receive a Form 1099-K for tax year 2022 reporting these payments to you and the IRS.
What are crowdfunding donations?
Crowdfunding donation campaigns on social media involve leveraging platforms like Facebook, Twitter, Instagram and others to raise money for a particular cause or project. These campaigns can be started and shared by friends, family or other social connections to provide financial support to a cause or charity they believe in. To amplify their impact, these campaigns often use compelling images, stories, hashtags and other messaging to create interest in a project or charity and build momentum around giving.
Are crowdfunding donations tax deductible?
By contributing to a crowdfunding donation campaign, it could potentially create a tax-deductible donation for you if the money qualifies as a charitable contribution. Generally speaking, 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.
What are charitable contributions?
Charitable contributions are donations or gifts made to qualifying organizations for the purpose of helping others. They are voluntary in nature and made without getting, or expecting to get, anything of equal value in return. You can make donations in the form of cash or goods and may be eligible for tax deductions depending on the amount and type of donation. Services aren't eligible for a tax deduction.
Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific or literary in purpose, or that work to prevent cruelty to children or animals. The organization receiving the donation must also be a registered charity or 501(c)(3) non-profit organization for it to qualify as a charitable contribution.
The IRS provides the following list of qualified organizations:
- “A state or United States possession (or political subdivision thereof), or the United States or the District of Columbia, if made exclusively for public purposes;
- A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals;
- A church, synagogue, or other religious organization;
- A war veterans' organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions;
- A nonprofit volunteer fire company;
- A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services);
- A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;
- A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.”
If you're not sure whether the group you want to donate money or gifts to is approved by the IRS to receive tax-deductible donations, check online at IRS Exempt Organizations Select Check. This site allows you to enter an organization's name and location to instantly find out if it qualifies for a tax deduction.
What restrictions are there on deducting charitable contributions?
To ensure you can deduct contributions made to qualified charitable organizations, you’ll need to follow some rules.
Keep your receipts
If you’d like to write off any cash contributions made to a qualified charitable organization, you’ll want to keep proper records of your donation. That means you’ll need documentation supporting your donation. That can mean a canceled check, bank record or a receipt with the charity's name and donation amount. So, if you place money in your church’s collection plate or give money to the Salvation Army outside a mall during the holiday season, you won’t be able to claim the deduction if you don’t have a corresponding document substantiating your contribution. This same practice applies to any amount of deduction, from your spare change to thousands of dollars.
There are different substantiation requirements you can use depending on the type of contribution being made:
- Cash contributions. You can’t deduct a cash contribution, regardless of amount, unless you keep documentation like a canceled check, bank or credit union statement, credit card statement, electronic fund transfer receipt, a scanned image of both sides of a canceled check obtained from a bank or credit union website, receipt from the qualified organization showing the name of the organization, date of the contribution and amount of the contribution, or the payroll deduction records. If you give $250 or more in cash contributions, you should ask for a written acknowledgment from the qualified organization to substantiate your contribution.
- Noncash contributions. The IRS provides various rules depending on the amount of noncash contribution made, ranging from $250 or under, to between $250 and $500, $500 and $5,000, and over $5,000.
- Out-of-pocket expenses when donating your services. If you incur unreimbursed expenses connected with donating your services of $250 or more, you’ll need to keep proper records and have acknowledgement from the qualified organization that contains numerous points of information. Also, if you claim expenses related to use of a car in the service of donating your services to a qualified organization, you must keep reliable written records of your expenses or properly track the miles driven if opting to use the flat $0.14 per mile deduction rate.
Time your donations correctly
When it comes to taxes, timing matters. Charitable contributions are no exception. You can only take a deduction in the year you make the charitable contribution.
- For example, if you issued a check by mail to a charity of your choosing on December 31, you’ve got the go ahead to write it off on that year's tax return. If you mailed it on January 1 by accident, you’ve got to wait an entire year to claim that donation on your tax return.
- In the instance of donating by credit card, you can claim the write-off in the same year the charge is processed. That means if you donate via credit card (as you’re likely to do with crowdfunding donations through social media platforms), you can claim the donation to a qualified charity in the year you are charged. If you don’t pay your bill until the following year, you can still claim the deduction made in the previous year on your taxes. Also, if you fail to pay your bill before credit card interest is assessed and your new balance carries interest charges, you can’t deduct those interest charges as part of your initial charitable contribution.
- If you’ve made a pledge to donate but haven't issued a payment, that doesn’t count as a deduction. You can only claim the charitable contribution as a deduction if you follow through.
You can only deduct so much
After keeping track of your donations and timing them right, you’ll also need to know the limits on how much you can deduct each year on your tax return. The basic rule is that your contributions to qualified charities, colleges and religious groups generally can't exceed 60% of your adjusted gross income (AGI) (or a one-time 100% of AGI in 2020 for qualified charities).
These figures change a bit when considered other types of nonprofits or in the case of making gifts of appreciated property. In both cases, the allowed limit drops to 30% of AGI. And if you hit the cap each year, the excess deduction carries over to the next year to offset future income subject to the limits in place for that year.
Also, you’ll need to remember you can’t write-off the full value of contributions to organizations that deliver something to you in return. You’ll need to reduce your contribution by the value of what you received in return for your contribution. For example, if you donate to a nonprofit school that in turn provides you with some sort of thank you gift, you’ll need to reduce the amount of your contribution by the market value of the gift you received in return.
To illustrate, if you buy a $100 ticket to a fundraising picnic at your child’s nonprofit school, but the cost of the food and beverages is $20, you can deduct $80.
- $100 donation - $20 return = $80 deduction
TurboTax Tip: If you make a deduction worth more than $75, the nonprofit must give you a written statement telling you the value of what you received in return and reminding you that you can't deduct that portion of your contribution.
As for another popular donation claimed by taxpayers for school athletic events: There's also a special rule limiting the deduction to 80% of its value if you’re donating to colleges and universities and receiving the right to buy tickets to school athletic events.
Are GoFundMe donations tax-deductible?
If you make donations through a personal GoFundMe campaign instead of an official charity’s fundraising efforts, these donations are generally considered to be personal gifts that aren’t likely to be tax-deductible.
Do I have to pay taxes on GoFundMe money I receive as a recipient?
If you or someone you know established a personal GoFundMe campaign in your name and it resulted in gifts from other people or organizations, you’re likely able to consider these as personal gifts subject to gift tax laws.
If you provided something of value in return for the donations, these can then be considered taxable. If you raise money through a crowdfunding campaign and the donor receives something of value, this can be construed as a sale and the net proceeds considered profits taxed as personal income. Likewise, if an employer donates to a crowdfunding campaign meant to help an employee, contractor or other entity engaged in work-for-hire, these contributions must be added to the recipient’s gross income as these aren’t considered donations.
Does GoFundMe send a 1099?
If you raised more than $600, and if contributors received anything in return for their donation, you’re likely to receive a 1099-K tax statement from the platform. It should break out the amount of money you received, less anything given to contributors in return, and result in a net amount shown on the form. This 1099-K will be sent to you as will a copy to the IRS documenting the net contributions to be reported on the proper tax forms.
Are Facebook donations tax-deductible?
If you make donations on Facebook toward a qualified charity, your donations are generally tax-deductible subject to the rules covered above. If you make donations to a personal crowdfunding campaign, the payments are likely not tax-deductible for you.
Do crowdfunding donations lower your tax bill?
Depending on the charitable contribution, crowdfunding donations may or may not be used to lower your tax bill. If you donate money through a crowdfunding campaign to benefit a qualified charitable organization, those funds are generally considered tax-deductible. On the other hand, if you make contributions to a personal crowdfunding campaign such as helping someone with medical bills or some other personal need, those donations aren't likely eligible for lowering your tax bill. The recipient won't typically need to pay taxes on those donations as they will likely be considered personal gifts subject to gift tax rules.
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