Crowdfunding is the term used to describe the method of raising money through websites by soliciting contributions from a large number of people. Contributions may be solicited to fund businesses, for charitable donations, or for personal gifts. Money raised through crowdfunding may be through organizers on behalf of other people or businesses, or may be by people raising money for themselves or for their business.
A crowdfunding website and/or its payment processor (such as PayPal, Stripe, WePay, etc.) is required to issue Form 1099-K to the payee if the total payments exceed $600 and the contributors received goods or services in exchange. (Prior to 2022, Form 1099-K was required if the distributions exceeded $20,000 and 200 transactions.) Conversely, if the contributions are gifts and no goods or services were exchanged, Form 1099-K isn't required.
Is a contribution to a crowdfunded website deductible as a charitable donation?
Not all gifts qualify as a tax-deductible charitable donation. Contributions made via a crowdfunding site (or by any means) are only deductible if the donation went to an organization that is recognized by the IRS as a qualified charitable organization. Charitable organizations typically issue a receipt to their donors, and the receipt should indicate whether or not the contribution is deductible.
Otherwise, to determine if a donation to an organization is deductible, locate the organization at the IRS Tax-Exempt Organization Search website. If it is there, examine its status as well as its determination letter to confirm whether or not donations are deductible. If the organization isn't there, contributions aren't deductible.
Are payments the taxpayer received from crowdfunding included in income?
Generally, an individual receiving property as a gift doesn't include the gift in their gross income. Thus, if the crowdfunding contributors gave out of "detached and disinterested generosity" receiving or expecting to receive nothing in exchange, then the amount the taxpayer received is most likely not income. However, if the taxpayer received a Form 1099-K for payments that are essentially gifts, you should include a preparer note in their tax return explaining why the payments are not included.
Otherwise, if the contributor received or is expecting to receive something in exchange, then the payments are more likely income.
Ultimately, the IRS takes all the facts and circumstances into account, so a taxpayer should have good records available should the IRS dispute excluding the amount they received from income.
Note: This is a guide to understanding Form 1099-K as it relates to crowdfunding. It is not intended as tax advice.
Additional Information:
IRS: Understanding your 1099-K
