Money Received Via Crowdfunding May Be Taxable, IRS Says

 Commentary  March 21, 2022 at 07:44 AM  Share & Print

 

What You Need to Know

  • Money received through crowdfunding — such as soliciting to fund businesses, for charitable donations, or for gifts — may be taxable.

  • Usually, property received as a gift is not includible in the recipient’s gross income.

  • If Form 1099-K must be filed, the crowdfunding website or its payment processor must also furnish a copy to the distributions’ recipient.

The Internal Revenue Service warned Monday that money received through crowdfunding — such as soliciting to fund businesses, for charitable donations, or for gifts — may be taxable.

The crowdfunding website or its payment processor, the IRS said, may be required to report distributions of money raised if the amount distributed meets certain reporting thresholds by filing Form 1099-K, Payment Card and Third Party Network Transactions, with the IRS.

“If Form 1099-K is required to be filed with the IRS, the crowdfunding website or its payment processor must also furnish a copy of that form to the person to whom the distributions are made,” the IRS states.

The American Rescue Plan Act clarifies that the crowdfunding website or its payment processor is not required to file Form 1099-K with the IRS or furnish it to the person to whom the distributions are made if the contributors to the crowdfunding campaign do not receive goods or services for their contributions.

Prior to 2022, “the threshold for a crowdfunding website or payment processor to file and furnish a Form 1099-K was met if, during a calendar year, the total of all payments distributed to a person exceeded $20,000 in gross payments resulting from more than 200 transactions or donations,” the IRS explains.

For calendar years beginning after Dec. 31, 2021, “the threshold is lowered and is met if, during a calendar year, the total of all payments distributed to a person exceeds $600 in gross payments, regardless of the number of transactions or donations,” the IRS said.

Accordingly, the agency continues, “if a crowdfunding website or its payment processor makes distributions of money raised that meet the reporting threshold, and the contributors to the crowdfunding campaign received goods or services for their contributions, then a Form 1099-K is required to be filed with the IRS.”

Tax Treatment of Money Raised Through Crowdfunding

Under federal tax law, gross income includes all income from whatever source it’s derived from unless it is specifically excluded from gross income by law. In most cases, property received as a gift is not includible in the gross income of the person receiving the gift, the IRS explained.

If a crowdfunding organizer solicits contributions on behalf of others, distributions of the money raised to the organizer may not be includible in the organizer’s gross income if the organizer further distributes the money raised to those for whom the crowdfunding campaign was organized, the IRS states.

Further, the IRS said, “if crowdfunding contributions are made as a result of the contributors’ detached and disinterested generosity, and without the contributors receiving or expecting to receive anything in return, the amounts may be gifts and therefore may not be includible in the gross income of those for whom the campaign was organized,” the IRS said.

Contributions to crowdfunding campaigns “are not necessarily a result of detached and disinterested generosity, and therefore may not be gifts. Additionally, contributions to crowdfunding campaigns by an employer to, or for the benefit of, an employee are generally includible in the employee’s gross income,” according to the agency.

Taxpayers, the IRS added, may want to consult a trusted tax professional for information and advice regarding how to treat amounts received from crowdfunding campaigns.

 

European Compliance Association

European Compliance Association

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