Crowdfunding is a method of raising money through websites by soliciting contributions from a large number of people. Crowdfunding beneficiaries may be businesses, charitable donations, or gifts. Sometimes, the crowdfunding organizers solicit money for other people or businesses. In other cases, people establish crowdfunding campaigns to raise money for themselves or their businesses.
Form 1099-K and Crowdfunding
A Form 1099-K (Payment Card and Third Party Network Transactions) reports crowdfunding distributions. Both the IRS and the funds recipient will receive a copy. The IRS does not receive a Form 1099-K if the fund contributors do not receive goods or services.
Prior to 2022, more than $20,000 in gross payments from more than 200 contributions required a Form 1099-K. January 1, 2022, the threshold lowered to $600 in gross payments, regardless of the number of transactions or donations.
A Form 1099-K must be filed with the:
- IRS if money raised meets the reporting threshold and the contributors received goods or services for their contributions.
- Crowdfunding campaign organizer for distributions made to the organizer.
- Funding recipients, that are not the organizer, if the distributions are for amounts that meet the reporting threshold.
It is possible that a person receiving a Form 1099-K may not recognize the filerâ€™s name on the form. Sometimes the payment processor, rather than the crowdfunding website itself, will issue the Form 1099-K and show as the filer. Contact the filer via the telephone number listed on the form for further information.
Box 1 on the Form 1099-K shows the gross distribution amount made to a person during the calendar year. However, receiving a Form 1099-K doesnâ€™t automatically mean the amount reported on the form is taxable. As discussed below, the income tax consequences depend on all the facts and circumstances. The IRS may request more information if Form 1099-K distributions and the recipient’s tax return do not match. The recipient must explain why.
Tax Treatment of Money Raised Through Crowdfunding
Federal tax law defines gross income as all income from any source, unless specifically excluded. Funds an organizer solicits for, and then distributes to, another entity are excluded. Crowdfunded contributions given without receiving or expecting anything in return, may be considered gifts and are generally excluded from gross income. However, contributions to crowdfunding campaigns are not necessarily gifts. An employee’s gross income includes contributions from their employer. Taxpayers may want to consult a trusted tax professional for information and advice about money received from crowdfunding campaigns.
Recordkeeping for Money Raised Through Crowdfunding
Crowdfunding organizers and recipients should keep complete and accurate records for all fundraising activity for at least three years.
Migration Resource Center Tax Services
The Migration Resource Center staff has a team of tax consultants, tax attorneys, enrolled agents, and CPAs. We can assist you with tax planning as well as reducing tax. In addition, we provide workshops on the Citizenship Interview and Test, Taxes, and Personal Finance. We offer workshops both online and in traditional classroom environments.