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I have read that gofundme and other crowdfunding sites are…

I have read that gofundme...
I have read that gofundme and other crowdfunding sites are classified "gifts" and they are not taxable to the recipient. Is that true and is there a limit on the amount received? for example, if someone received a million dollars as "gifts" is any of the million dollars taxable? Also, if they then turned around and donated the million dollars to different charities, is that ok with out any tax consequences?
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Customer reply replied 1 year ago
If you can explain both federal and state tax issues that would be appreciated.
Answered in 13 minutes by:
5/22/2017
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,203
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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The taxation depends on the use of the funds. If you are using the money to fund a business or any pursuit of profit, IRS treats this as Gross income to that business. (and state's returns start with Federal AGI, so mirrors)

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I Just helped a client who came to me after IRS re-characterized money he was treating as gifts, as income.

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No cases or IRS rulings directly address the taxability of contributions to a crowdfunding project. Accordingly, whether crowdfunding contributions received are includible in income must be determined by the application of general tax principles.

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There HAS been ONE information letter re: this from IRS.

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In the Information Letter, IRS concluded that generally, money received without an offsetting liability (such as a repayment obligation), that is neither a capital contribution to an entity in exchange for a capital interest in the entity nor a gift, is includible in income. The facts and circumstances of a particular situation must be considered to determine whether the money received in that situation is income.

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What that means is that crowdfunding revenues generally are includible in income if they are not:

1. loans that must be repaid;

2. capital contributed to an entity in exchange for an equity interest in the entity

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In addition, crowdfunding revenues must generally be included in income to the extent they are received for services rendered or are gains from the sale of property

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IRS Information Letter 2016-0036

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Please let me know if you have ANY questions at all, before rating me.

I hope you’ll rate me (using those stars, or faces on your screen, and clicking submit) based on thoroughness and accuracy, rather than any good news / bad news content.

Otherwise I’ll receive no compensation at all, from JustAnswer.

Thank you!

Lane

..

I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice to clients on three continents since 1986

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Customer reply replied 1 year ago
Hi Lane, here is the specific example if you can please elaborate - a site is set up to receive money as a gift in order to accumulate a pool of money to then be donated to charities. 100% of the money received would go to a variety of charities. If you can be specific as possible it would be highly appreciated for both federal and state taxes.

You'd simply want to account for the amounts that went to charities, retain proof that the dollars were donated.

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You will get a 1099-K if there is more than 20,000 in receipts and 200 transactions, so IRS WILL be looking for proof that the money was donated.

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Likely they'll say that you need to BE a 501(c)(3) non-profit yourself, to accomplish this.

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You'll need to file form 1023 - and state your purpose/mission and part of that wold need to include WHY the individuals would donate to you rather than directly to the charity.

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For the individuals to take a tax deduction they would need that receipt from the charity (either you as a non-profit or go direct TO the charity)

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You might want to read this:

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https://www.irs.gov/uac/eight-tips-for-deducting-charitable-contributions

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And this:

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https://www.irs.gov/charities-non-profits/applying-for-tax-exempt-status

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Customer reply replied 1 year ago
Thanks Lane. So basically there is no specific answer? If I had records of every penny received was donated, even with or with out being a 501(c)(3) I could basically be taxed if the IRS wanted?

Not if you prove that these were gifts and you simply passed through to the charities.

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But doing THAT takes away the possibility of the donors getting a tax deduction. They MUST have acknowledgement of the donation from the charity

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So sorry

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Customer reply replied 1 year ago
Thanks Lane. Your last response was somewhat helpful as I am 1000% sure I can prove the gifts were passed through to charities. The only aspect if I choose not to be a 501(c)(3) is the person gifting would not be able to have a deduction on their taxes.

That's right. If there's no pursuit of profit, and the donors are simply giving you a gift with no expectation of anything in exchange - then it IS a gift - but, yes, no deduction for them that way.

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There IS now a 1023 EZ ... (you would see that in one of the IRS links above) a simplified way to apply for non-profit status

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

...

But if you need more on this, please let me know.

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,203
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Customer reply replied 1 year ago
Thank you Lane. I was unaware of the 1023 EZ. I will take a look. Thank you very much for your replies!!
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