Crowdfunding lets you help those in need with absolute ease and minimal fuss. Click your mouse, tap your phone, and send money off to someone who needs it—at least if the website campaign is to be believed. It doesn’t have to be cash debited from your bank account, as PayPal and credit cards work, too.
You can claim a tax deduction for making charitable donations, though it may be subject to many rules. Unfortunately, these rules prevent many crowdfunding donations from qualifying.
- If you donate money through crowdfunding, you may be able to claim a deduction on your tax return, so long as it goes to a qualifying charity.
- The IRS and many crowdfunding sites have tools available to help you determine whether the recipient is a verified 501(c)(3).
- To take advantage of a charitable deduction, you must itemize your taxes; any benefit will depend on your marginal rate and standard deduction.
- There is a yearly limit on how much you can donate before you are responsible for paying a gift tax.
Crowdfunding and Charitable Donations
You’ve most likely heard of the sites, even if you’ve never donated before—GoFundMe, Kickstarter, Crowdfunder, and numerous others. Maybe a family faces dire financial trouble due to some unforeseen catastrophe, or someone is trying to raise money to create an amazing new gadget that will save the world. So, maybe you donate $50 to the appropriate account through a crowdfunding website.
That family or up-and-coming entrepreneur won’t receive the full $50. The site will deduct a processing fee first. GoFundMe’s payment processing fee is 2.9%, plus an additional $0.30 per donation.
The most restrictive charitable donations rule in the Internal Revenue Code (IRC) covers whom you can give money to if you want to claim a tax deduction for your generosity. Unfortunately, gifts to individuals don’t qualify. You can’t give $50 to your down-on-his-luck neighbor and then claim a tax deduction for it, whether you gave that $50 to them directly or through a crowdfunding site. The Internal Revenue Service (IRS) calls that a gift, not a donation.
Other donations that are not considered charitable donations for tax purposes include funds given to political parties, foreign organizations and governments, labor unions, social clubs, and for-profit hospitals and schools.
You can claim a tax deduction for some contributions made through crowdfunding platforms if your donation is to a certified charity, officially registered with, and recognized by, the government, and regulated by federal or state law. In other words, it must be a 501(c)(3) organization.
Crowdfunding sites are, naturally, well aware of this hitch, and some, including GoFundMe, have taken steps to help you out under such circumstances. They identify the campaigns on their websites that qualify for a tax deduction because they’re run by 501(c)(3) organizations. You’ll usually see some type of badge or emblem next to the campaign name on the site. Even sites that don’t go that extra mile will usually note that the organization is a qualified charity in some fashion.
The IRS offers a tax-exempt organization search tool. If the crowdfunding campaign organizer’s name is there, it’s tax-exempt, and you should be able to claim a deduction. Otherwise, you likely won't be able to do so.
You Must Itemize in Order to Claim the Deduction
Assuming that the crowdfunding campaign that you want to give to meets all applicable rules, you’ll have to do a little more work to claim a tax deduction in exchange for your kindness. You must itemize your tax return in order to claim a deduction for charitable giving in the year you donated. That means completing Schedule A with your tax return.
If you choose to itemize your taxes, you'll have to forgo the standard tax deduction for your filing status. Many taxpayers find that when they add up all of their qualifying itemized deductions—not just for charitable giving but also for things like state and local taxes and medical expenses—the total is less than the standard deduction.
Check the chart below to learn standard deduction amounts for tax year 2022 compared to 2021.
|Single, Married Filing Separately||Married Filing Jointly||Heads of Household|
For example, if you file in 2022 as a single taxpayer and claim a total of $10,000 for your itemized deductions, you’d end up paying taxes on $2,950 more in income than you'd need to.
Even if you give thousands, your donation might not count toward your itemized deduction total. The IRC limits most deductions for donations to 60% of your adjusted gross income (AGI), along with other possible limits, such as if you expect to receive a state or local tax credit for your contribution. If you received anything of value in exchange for your giving, you must deduct its value from your claimed deduction.
It’s a good idea to keep receipts to confirm any charitable donations. In fact, you must do so (and charities must provide you with a receipt) if you donate more than $250.
Your AGI is what’s left after you take certain adjustments to income. It can be found on line 11 on your form 1040 tax return. For example, if your AGI is $50,000, and you donated $35,000, you’re limited to claiming a deduction for only $30,000 of your donations. As a practical matter, however, most people don’t give away more than 60% of their income.
The Gift Tax Complication
There’s one more equation to calculate—you could be responsible for the federal gift tax. The IRS considers a “gift” to be a transfer of value (such as cash, stocks, or another asset) to an individual, without expectation of any form of repayment (including services or favors). In tax year 2022, the IRC allows you to give away up to $16,000 per gift recipient per year without incurring the tax, up from $15,000 in 2021. Keep in mind that the $16,000 annual exemption increases to $32,000 if you are married and file a joint return. You and your spouse each can claim a $16,000 exemption.
The donor, not the recipient, pays the gift tax. In other words, you would owe the gift tax on $10 if you were generous and donated $16,010 to one charity. The tax rates for gifts in excess of $16,000 range from 10% (on amounts over $16,000 by $10,000 or less) to 40% (on amounts over $16,000 by $1 million or more).
You don’t have to pay the gift tax on any donation you give to a crowdfunding campaign that’s run by a qualified charity.
Frequently Asked Questions (FAQs)
I contributed to a GoFundMe account for a friend's surgery. Can I claim a tax deduction?
Unfortunately not. Money given to individuals does not count as a charitable donation for tax purposes.
My friend raised $20k for my surgery. Do I have to pay a gift tax?
You won't have to pay a gift tax, since this is the responsibility of the donor, but you will have to include this amount as part of your taxable income. Deductions for medical expenses may help to offset the cost.
I donated to a local charity, and they gave me an expensive gift in return. Who pays here?
The precise tax consequences depend on the amount of the donation, the value of the gift, and your personal tax situation. But generally speaking, you can claim a deduction for the amount of your donation minus the amount of the gift you received in return.
GoFundMe. "Pricing and Fees." Accessed Dec. 16, 2021.
Internal Revenue Service. "Frequently Asked Questions on Gift Taxes." Accessed Dec. 16, 2021.
Internal Revenue Service. "Publication 526, Charitable Donations." Accessed Dec. 16, 2021.
GoFundMe. "Choosing a Campaign Type." Accessed Dec. 16, 2021.
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2022." Accessed Dec. 16, 2021.
Internal Revenue Service. "Charitable Contributions." Accessed Dec. 16, 2021.
Internal Revenue Service. "Instructions for Form 709." Accessed Dec. 16, 2021.