Are Crowdfunding Donations Tax Deductible?
Can you catch a tax break for donating to a crowdfunding site? Maybe
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.
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 you donate $50 to the appropriate account through the 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 30 cents per donation.
Now, the most restrictive charitable donations rule in the Internal Revenue Code (IRC) relates to whom you can give money if claiming a tax deduction for your generosity. Unfortunately, gifts to individuals don’t qualify. Even after you take crowdfunding out of the equation, you can’t give $50 to your down-on-his-luck neighbor and then claim a tax deduction for it. The IRS says this is a gift, not a donation.
Other donations may be off limits for the charitable donation tax deduction, including funds given to political parties, foreign organizations and governments, labor unions, social clubs, and for-profit hospitals and schools.
You can’t claim a tax deduction for your donation if you give the money to a fundraising campaign for a private individual on a crowdfunding site.
IRS Approved Charities
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. They identify the campaigns on their websites qualifying 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 this 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 here, it’s tax exempt and you’re good to go. Otherwise, you can’t claim a tax deduction for your donation.
You Must Itemize to Claim the Deduction
Assuming the crowdfunding campaign 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. This means completing Schedule A with your tax return. You’ll have to forego the standard tax deduction for your filing status because you can’t claim that and itemize, too.
Many taxpayers find that when they add up all their qualifying itemized deductions—not just for charitable giving but for things like state and local taxes and medical expenses as well—the total is less than the standard deduction.
As of tax year 2019, the standard deductions are:
- $12,200 for single filers or married taxpayers filing separately
- $18,350 for those who qualify as head of household
- $24,400 for married taxpayers filing jointly and qualifying widow(er)s
For example, if the total of your itemized deductions is just $10,000, but you claimed those versus the $12,200 standard deduction, you’d end up paying taxes on $2,200 more in income.
Even giving thousands, your donation might not count toward your itemized deduction total. The IRC limits most cash donations to a cap of 60% of your adjusted gross income (AGI), along with other possible limits, such as if you expect to receive 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 if you donate more than $250.
Your AGI is what’s left after you take certain adjustments to income, and can be found on line 7 on your form 1040 tax return. For example, even if you donated $35,000, you’re limited to claiming only $30,000—or 60%—of that if your AGI is $50,000. As a practical matter, however, most people don’t give away more than 60% of their available incomes.
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 money to an individual, without expectation of money or value in return.
The IRS allows you to give away up to $15,000 per person or entity per year without incurring the tax. Keep in mind that the $15,000 annual exemption increases to $30,000 if you happen to be married and file a joint return. You and your spouse each can claim a $15,000 exemption in this case.
The donor pays the gift tax, not the recipient. In other words, you would owe the gift tax on $10 if you were generous and donated $15,010 to one charity. The top rate can be as much as 40% as of 2019.
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.
Remember: Tax Rules Can Change Yearly
Tax law is a regularly shifting landscape. The rules for 2019 might not still apply in 2020, and many are different than they were in 2017 before the Tax Cuts and Jobs Act (TCJA) went into effect in 2018. For example, your deductible charitable contributions were limited to 50% of your AGI before the passage of the TCJA. All figures and percentages cited here apply to the 2019 tax year. Consider working with a tax professional if you’re thinking of giving a particularly sizeable gift or donation through any crowdfunding site.
Internal Revenue Service. "Frequently Asked Questions on Gift Taxes," Accessed Nov. 17, 2019.
Internal Revenue Service. Publication 526 (2018), "Charitable Contributions," Accessed Nov. 17, 2019.
GoFundMe. "Choosing a Campaign Type," Accessed Nov. 17, 2019.
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2019," Accessed Nov. 17, 2019.
Internal Revenue Service. "What's New - Estate and Gift Tax," Accessed Nov. 17, 2019.