Are Crowdfunding Donations Tax Deductible?
If you’ve ever contributed to a crowdfunding campaign, you may have felt you were making a charitable donation to a good cause. While this may be the case, it’s common for your crowdfunding contributions to not be eligible for tax deductions. In many cases, the contributions you make to crowdfunding causes cannot be claimed as charitable donations when you’re preparing your taxes.
Even if the crowdfunding campaign you contribute to is for a good cause or the campaign claims your money will be used to improve a community issue, there are still strict regulations on whether you can deduct it from your taxes as a charitable contribution. You’re only eligible to deduct your contribution to a crowdfunding campaign if the campaign is administered by a certified charity.
If you’re planning to provide a donation to a crowdfunding campaign or give money to a friend or neighbor in need, it’s important to understand the tax guidelines related to your contribution before you assume you can write it off on your tax return.
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Crowdfunding vs. Charitable Donations
There are differences between the way the Internal Revenue Service (IRS) treats crowdfunding contributions and charitable donations as it relates to your taxes. Learning more about the differences between these two types of contributions can help you better understand the tax laws related to your donations.
Crowdfunding campaigns are usually set up on public websites for families, individuals, organizations, or businesses. In some cases, you may donate money to campaigns that support politicians, families in need of basic necessities, or entrepreneurs attempting to launch new products. Some of these crowdfunding campaigns may be set up by registered charities or non-profit organizations that are using the online source to collect funds for their cause.
Your crowdfunding contribution is only tax deductible if it’s made to a campaign administered by a certified charity. This includes any charity that’s registered as a 501(c)(3) organization. When a charity is registered as a 501(c)(3) organization with the IRS, it meets the following qualifications:
- Its operation is focused on a tax-exempt purpose approved by the IRS, such as preventing cruelty to animals or testing for public safety.
- It’s not designed for individual or personal profit or interest.
- None of its earnings go to a private shareholder.
- Its goal is not to influence legislation or participate in political activities.
Most crowdfunding sites identify 501(c)(3) organizations in their online campaigns. This allows you to note if your contribution is tax-deductible or if it’s considered a gift to an individual or non-charitable organization.
Gifts vs. Non-Gifts
When you contribute to a charitable organization, you’re providing a contribution that is tax deductible. However, if the crowdfunding campaign you choose to contribute to isn’t run by a certified charity, it’s considered a gift. The IRS looks at this transaction no differently than if you were to buy your friend a new pair of shoes. Your contribution is not identified as charitable, even though you’re not expecting anything in return.
If your contribution is considered a gift, it may be subject to the IRS gift tax. This is the case if you transfer money or property to an individual without expecting payment or anything else in return. As an individual tax filer, you can give away property or money up to $15,000 without being responsible for paying the gift tax. However, if your gift value is more than $15,000, you must claim your contribution when you file your taxes and you could owe up to 40% of its value in taxes.
Tax Cuts and Jobs Act
When you claim charitable donations as deductions on your taxes, you must itemize your deductions. However, the Tax Cuts and Jobs Act (TCJA) doubled the standard deduction you can claim on your taxes. With the TCJA in place, many taxpayers find it more financially beneficial to claim the standard deduction as opposed to itemizing their charitable contributions and other deductions.
How to Claim Charitable Donations
If you’ve made holiday contributions to charities on crowdfunding sites or other contributions to registered nonprofit organizations, you can claim these donations on your taxes. Before making this claim, ensure your itemized deductions are greater than the standard deduction you qualify to receive.
Itemize the Claim
To claim the contributions you made to charities, you cannot claim the standard deduction on your taxes. You must itemize all your deductions, including the charitable contributions you made throughout the year.
If you donated property to a charity, you must estimate the fair market value of this property. Keep all receipts for the cash and property you contributed to these nonprofit organizations. The IRS has certain exceptions that you cannot include in your deduction, such as time you contributed to a charity when volunteering or personal expenses you incurred when assisting a nonprofit organization.
Calculate the Gift Tax
If you contributed to a crowdfunding campaign that wasn’t administered by a certified charity, you may owe a gift tax. If you’re an individual filer and the gift you made is $15,000 or more, you must pay the gift tax by April 15 of the following year. You may qualify to pay the gift tax online with the IRS after calculating the value of your gift.
Before completing your tax return and calculating your tax refund, you must learn if your crowdfunding contributions are tax deductible. If they are, you must also decide if it’s more beneficial to itemize your deductions and claim these contributions. Understanding which contributions qualify for tax deductions ensures you file your taxes properly and promptly.
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