How to File a Crowdfunding Campaign on Your Tax Return

In the “You Got This” Weekly Series, we will answer a question from our customers found on Facebook, Twitter, TaxAct’s Blog, and around the web.

Question:

I ran a successful crowdfunding campaign last year for a medical need (service animal) for my disabled daughter. It wouldn’t be covered by insurance. It’s a long process and we’ve paid a portion to the certified training company already. How do I need to file this for tax purposes?

I’m certain I need to file it as income, but with it being for a medical need is there any way to deduct the amount we’ve already paid?

Answer:

Crowdfunding has become a popular way for people to raise money to fund a new business, an idea, or, as you know, help pay for personal causes.

Popular websites like Kickstarter and GoFundMe make crowdfunding easy.

As of late 2014, the IRS has not issued guidelines on how to treat donations made to individuals and will look at donations on a case-by-case basis.

At this time, donations to an individual are considered taxable income if they are not gifts, loans or equity investments.

If you used a website to raise money for a personal cause such as paying for medical expenses for your animal or sending your child to summer camp, these donations are considered a gift as long as the donor does not receive anything in return.

For example, if someone donates $100 to you and does not receive anything in return, the $100 is a non-taxable gift.

However, if someone donates $100 to you and you give them a gift worth $20 in return, then your non-taxable gift is $80.

If the donation is a gift, a gift tax may apply; however, the person responsible for the gift tax would be the donor, not you as the recipient.

In 2014, a donor can donate up to $14,000 without being subject to gift tax.

If you crowdfunded to raise money to start a new business and someone donated money in exchange for equity in your business, the donations are considered investments or “capital contributions”.

In this case, that’s not considered taxable income and you do not need to report this on your return.

On the other hand, if someone donated money but did not receive equity in your company, this is considered taxable income that you will need to report on your return.