Crowdfunding Campaigns And Tax Responsibilities
How many times have we seen it on social media sites; a family member or friend has faced an unexpected and tragic accident, illness or loss and someone launches a crowdfunding campaign to help. Sometimes thousands of dollars are raised. Now, not surprisingly, the IRS is turning its attention to these crowdfunding activities to figure out how they can take a piece of the action. They’ve even issued two reminders already this year! So, if you are fond of crowdfunding or are the beneficiary of a crowdfunding effort, you might want to take note.
With the very recent tragic and massive losses on Florida’s southwest coast, there may be a significant rise in crowdfunding campaigns. Be aware that the IRS considers some funds raised in a crowdfund campaign as taxable income, while they consider others as gifts and non-taxable.
Here is a brief overview of the IRS’s current position on crowdfunding:
• If people donate to a crowdfunding campaign out of generosity and without expecting anything in return, the donations are gifts. Therefore, those funds will not be included in the gross income of the person for whom the campaign was organized.
• When employers give to campaigns for an employee, those contributions are generally included in the employee’s gross income.
• People who run campaigns or receive money from one should keep careful records about the campaign and the disposition of funds for at least three years. Complete and accurate records of fundraising proceeds and dispositions are critical for organizers of campaigns and recipients of campaign funds for at least three years.
• Income Tax consequences depend on all the facts and circumstances. The IRS has stated that “If the distributions reported on a Form 1099-K are not reported on the tax return of the recipient of the form, the IRS may contact the recipient for more information”.
It’s always a good idea to consult a tax expert if you have received monies from crowdfunding campaigns or if you have launched a crowdfunding campaign. If you need help with any tax issues, give our office a call.