Crowdfunding can be easy, but the tax implications may not be

Does your not-for-profit use crowdfunding platforms — such as Kickstarter, GoFundMe and Indiegogo — to raise money? Many nonprofits have found they’re a great way to engage potential supporters, particularly younger adults. However, there are tax implications that may be different from what you’re used to with other fundraising methods. Let’s take a look.

IRS definition

According to the IRS, crowdfunding is a method of raising money through websites by soliciting “contributions” from a large number of people. Crowdfunding is often used to help small businesses raise cash or fund other for-profit projects. But it also can be used to solicit donations for charitable causes.

Your organization might, for example, run a crowdfunding campaign for a specific organizational project or to generate funding for an urgent need among one or more of your constituents. In addition, your supporters might organize crowdfunding campaigns for you.

A lower threshold

Under tax law, a crowdfunding website or its payment processor may be required to report distributions of funds by filing IRS Form 1099-K, “Payment Card and Third Party Network Transactions.” If so, it also must provide a copy to the recipient (your nonprofit or, potentially, an organizer) of the distributions.

As recently as 2023, the reporting threshold was met if, during a calendar year, the total of all payments distributed to an organization or organizer exceeded $20,000 in gross payments resulting from more than 200 transactions or donations. Now, the threshold is much lower: If the total of all payments distributed to your organization exceeds $2,500 in gross payments in the 2025 calendar year (down from $5,000 in 2024) — regardless of the number of transactions or donations — the threshold is met. So if $2,500 or more in distributions are made directly to your nonprofit, the form should be furnished to you. (This threshold is scheduled to drop to only $600 beginning in 2026.)

Different scenarios

The issuance of Form 1099-K doesn’t necessarily mean the amount of distributions is taxable to recipients. Let’s say, for example, that one of your supporters, Leah, starts an Indigogo campaign that raises more than $2,500 for your organization. She subsequently receives Form 1099-K. If she distributes the money raised to your nonprofit, the distributions in Box 1 likely won’t be taxable to Leah. However, donors to the campaign might not be able to deduct their contributions because the campaign wasn’t run by your nonprofit.

Here’s another scenario: Your organization runs a GoFundMe campaign to raise funds for a specific client with immediate medical needs, and the platform distributes money directly to him. According to the IRS, if contributions are made because of contributors’ “detached and disinterested generosity,” and they don’t expect to receive anything in return, the amounts may be gifts and therefore aren’t taxable to your client. To be certain, crowdfunding recipients should discuss the situation with a tax professional.

Don’t pass it up

Tax rules are complicated when raising money on crowdfunding platforms. This doesn’t mean you should pass up this potentially valuable fundraising method, particularly at a time when federal government funding is drying up. But contact us first to help ensure you’re following IRS rules and providing the right information to your supporters.

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