Video Tips: The Tax Implications of Crowdfunding
Crowdfunding is a popular way to raise money online. People often use crowdfunding to fundraise for a business, for charity, or for gifts to needy individuals. It's important to know that money raised through crowdfunding campaigns may be taxable.
How Crowdfunding Works
Crowdfunding platforms like GoFundMe, Kickstarter, and Indiegogo allow individuals and businesses to raise money from many people, typically via the internet. Each platform has its own structure, but the general concept is the same: a campaign is created, people contribute money, and the funds are distributed to the beneficiary.
Tax Implications
Whether crowdfunding proceeds are taxable depends on several factors:
- Purpose of the fundraiser: If funds are raised for business purposes, they're generally taxable as business income.
- Rewards offered: If backers receive something in return (a product, service, or reward), the funds are typically taxable income.
- Donations: If contributions are made as genuine gifts with no expectation of anything in return, they may not be taxable to the recipient.
- Charitable campaigns: If funds are raised for a qualified charitable organization, contributions may be deductible for the donor.
Reporting Requirements
Starting in 2025, crowdfunding platforms may be required to issue Form 1099-K to recipients who receive more than $20,000 and have more than 200 transactions in a calendar year.
Even if you don't receive a 1099-K, you're still responsible for reporting taxable income from crowdfunding on your tax return.
Key Takeaway
If you've raised money through crowdfunding, don't assume it's tax-free. The tax treatment depends on how the funds were used, what was offered in return, and the nature of the campaign. Consult with a tax professional to understand your obligations and avoid surprises at tax time.
