Crowdfunding – Is Your “Gift” Tax Deductible?
by Howard Zangwill and Juan Maciel| RINA
If one was to go through their checkbook and review the donations they made during the year, traditionally, they would see charitable contributions made to organizations such as public charities, religious organizations, and alma maters. With the popularization of the internet, one might also see contributions made to crowdfunding campaigns through platforms such as gofundme.com, causes.com, and fundly.com. Crowdfunding campaigns use the online community to help fund personal or charitable endeavors through crowdfunding websites. While crowdfunding provides a quick and convenient response to national causes and personal needs, the tax consequences are unclear and complex. The primary tax issue is the deductibility of donations and the taxability of funds to the ultimate beneficiary.
For the donor, the tax issue is to determine whether the donation is a tax-deductible charitable contribution or non-deductible gift. If the crowdfunding campaign benefits a qualified organization, the donor should be able to claim a deduction for the full amount of the charitable contribution. To be deductible, gifts under $250 require a bank record or written receipt from the charity and gifts of $250 and over require written acknowledgement from the charity.
Although not normally disclosed on website platforms, donations to crowdfunding campaigns benefiting an individual’s medical or other personal needs are not deductible as charitable contributions. These may be considered a non-deductible gift and qualify for the annual gift tax exclusion ($15,000 for 2018; $30,000 for spouses). To qualify for the annual gift tax exclusion, gifts should be immediately available to the recipient. Funds raised through crowdfunding websites may not be immediately available if collected through a third-party payment processing service. Donations that do not qualify for the $15,000 annual gift tax exclusion could create a taxable gift and require a gift tax return.
For beneficiaries, tax issues depend on whether the recipient is an exempt organization or individual. Funds received by exempt organizations are typically reported as contribution income on the organization’s Form 990. Funds received by individuals will generally qualify as gifts. Gifts are excludable from taxable income. However, while funds deemed as gifts are excludable from taxable income, a large inflow of funds from crowdfunding may cause a beneficiary receiving government benefits to lose their benefits. Raising funds for special needs trust may help avoid this issue but requires tax planning.
Please contact your RINA representative if you have any questions or would like to discuss this further.