September 7, 2017

Crowdfunding Tax Considerations

Credit card in hand

As Houston continues to recover from the devastation of Harvey, the citizens of Houston are rolling up their sleeves and helping out in any way that they can. Many people are starting crowdfunding campaigns for particular families that have lost everything and may not have the funds to rebuild their lives. Before you set up that campaign and begin collecting donations, you should take a brief moment to learn the possible tax consequences on those campaigns.

When you set up a campaign, you must provide either a social security number (SSN) or employer identification number (EIN). Depending on what type of organization you register your campaign as, how much money is brought in, and how many transactions occurred, you may end up with a Form 1099 issued by the crowdfunding website once the funds are withdrawn. The Form 1099 is reported to the IRS, which they look for on your tax return. If you do receive a Form 1099, you may be able to exclude the income from your tax return.

If you are setting up a campaign that does not benefit a 501(c)(3) organization, then those funds are not tax deductible. For example, if you give money to the Watt family GoFundMe campaign, your gift is not tax deductible. However, if you give money to the JJ Watt Foundation GoFundMe campaign, your gift is tax deductible.

Although we all want to help those we see in need, it is important to know the possible consequences that your charitable actions may lead to. We suggest contacting one of our tax specialists who can guide you through various issues you may face along the way, and to keep adequate records of the campaign.

Rachael Knapp

Rachael Knapp

MTA is a full service, privately held CPA firm established in 1985 in Houston, Texas. Built on a reputation for client service, the firm delivers tax-compliant solutions through its financial planning, tax preparation and consulting services.

With more than 30 years of experience, our team of seasoned professionals will help you define personal and professional financial goals and establish strategies to maximize achievement.
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