GoFundMe donations for birthday celebrations raise tax and questions

GoFundMe donations for your favorite charity can be a great way to share your birthday cheer and excitement. You can even ask your friends to make donations in the same amount of your new age. It’s often a feel-good moment for everyone! And it’s easy.

GoFundMe is a form of donation-based crowdfunding which involves backers donating money to support a specific cause or project and is essentially a donation. They specialize in money being raised by people for personal causes and life events. Usually nothing is received in return. The two other main types of crowdfunding are both reward-based. Goods or services in return for payment, or equity in return for payment.

There’s more to GoFundMe than fundraiser tips and tricks.

There are reasons GoFundMe includes information about certified charity campaigns and taxes. Their website doesn’t try to keep up with the interpretation of the Tax Cuts and Jobs Act of 2017, and they urge users to consult with a tax professional regarding tax deductions and income.

GoFundMe for the good cause, feel-good, and tax deductions.

There’s nothing wrong with feeling good by doing good and having the benefit of a tax deduction that, in the big picture, could allow you to give more. How does this work?

Generally, donation-based crowdfunding campaigns such as GoFundMe are set up by default for an individual to receive the funds. With GoFundMe you may be able to withdraw funds on behalf of an affiliated organization, and GoFundMe has a team to help you.

Remember, taxpayers can only deduct qualified charitable contributions correctly made to qualified charitable organizations, such as 501(c)(3) entities. Contribute, enjoy and help the causes that touch your heart. But if you want to claim a deduction with the IRS, dot your “i’s”, cross your “t’s” and get the verification.

The flip side of GoFundMe deductions is income.

The IRS cares when large sums of money are collected and change hands. The methods of reporting, collecting and adding up these sums of money still lurk in the gray areas of undefined IRS policy. GoFundMe alone claimed more than 50 million donors and more than $5 billion in total fundraising as of late 2017. Their largest campaign to date was set up to aid victims of the 2017 mass shooting in Las Vegas. In the first 15 days, nearly $11 million was raised.

Whether you think your website campaign or birthday gift donation project is big or small, the IRS can add the numbers up any way it wants. If you don’t like the results, it’s up to you go prove they are wrong. The key numbers to remember are 200 separate contributions, $20,000 in donations and/or gifts, and the X factor which is whatever the IRS says it is.

When does it get reported? GoFundMe and other crowdfunding platforms will usually issue an IRS 1099K (Payment Card and Third Party Network Transactions) to the campaign organizer. The IRS is well aware that more 1099Ks have been issued than have been received back reporting income. That’s a big red flag waving at the IRS on your tax return.

The 1099K is an informational report and, depending on how a donation-based crowdfunding campaign was set up, money raised may qualify for gift or donation treatment to the needy person ultimately receiving the money. In one instance, 1099K interpretation was that those who receive only gifts or donations do not provide goods or services, so payers are presumably not required to send 1099Ks to those recipients. The IRS could interpret this different. Another red flag on your tax return.

There is still a lot of confusion and gray area where the IRS is concerned, and GoFundMe has offered support and guidance for this issue. One of the main areas of concern is that after money raised and donated, given or gifted to the recipient (beneficiary) is no longer available, having long since been used by the beneficiary, any delinquent tax assessment could pose considerable hardships on that beneficiary. Remember the 200 transactions or $20,000 rule.

Before the IRS asks questions.

Before you decide to raise money for a beneficiary through a donation-based crowdfunding platform, be sure you:

identify the beneficiary
prove that the campaign creator is acting on the behalf of the beneficiary
state that you are requesting donations or gifts, and that nothing will be given to the donors in return
keep (in printed, hard copy format) a copy of the campaign website and all postings
keep documentation of all monetary transfers, especially if the campaign website and postings are set up by a family member or friend (actually, all funds should be withdrawn by the beneficiary)
have documentation that funds were spent as indicated on the campaign website and postings

Before you donate to the cause.

Understand what you’re doing. If a friend decides to raise money for winter coats through a GoFundMe Facebook birthday gift project, and you want to participate, go ahead. Coats are needed. But if the project has a good response and gets 300 donations averaging $5 each, the campaign platform could very well present the Birthday Celebrator with a 1099K and send a copy to the IRS. And if you participated liberally in several projects like this (along with others) and total contributions exceeded the standard deductions, you might find that your donations through GoFundMe projects do not meet the criteria, even though the receiving agency was a legitimate 501(c)(3) entity. You could have a big tax deduction surprise if total deductions didn’t quite meet the minimum requirements.

What’s the bottom line?

Giving to causes near and dear to your heart are things you should do. Being faced with new and untested tax laws and uncertain IRS reactions to your actions are things you shouldn’t have to face alone. Many individuals wonder why they need a CPA tax specialist as part of their total life team. The IRS is a team of specialists. So are we.

If you’ve never consulted a CPA tax specialist, now is the time to do it. contact us immediately.

Our goal is to become part of your overall life and business goal planning team so that you’ll be able to establish your own goals and know that you have a trusted professional on your team. We establish and maintain a personal and business relationship with our clients. Your LIFE is your business and your BUSINESS is your life. We’re here for YOU.

Call us at 479-668-0082. Use my Calendly Page (it’s easy) to set an appointment or email us.