Can I Fundraise for an Individual?

Supporting an individual facing personal hardship, such as medical bills, educational expenses, or general financial struggles, often prompts people to organize fundraising efforts. This type of fundraising involves collecting money directly for a friend, family member, or acquaintance to help them meet these personal needs. These direct appeals operate under different guidelines than soliciting donations for established charitable organizations recognized by the IRS. Financial and tax considerations differ significantly from traditional charitable giving.

General Framework for Fundraising for Individuals

Generally, fundraising directly for an individual is permissible, allowing people to collect and transfer funds to someone in need. These transactions are typically viewed as a series of personal gifts between individuals rather than a formal charitable solicitation. Unlike contributions made to qualified charitable organizations, such as those designated under IRS Section 501(c), funds given directly to an individual do not qualify as tax-deductible for the donor.

When organizing or contributing to a personal fundraiser, maintaining transparency and honesty in all communications is important. Clearly stating that contributions are personal gifts and not tax-deductible helps manage expectations and avoid any potential misrepresentation. The direct transfer of funds from multiple individuals to a specific recipient is generally seen as a series of individual financial transfers, each subject to specific tax rules.

Tax Implications for the Recipient

Under federal tax law, personal gifts are generally not considered taxable income to the recipient. The Internal Revenue Service (IRS) typically views gifts as transfers of property from one individual to another without any expectation of repayment or exchange for services, falling outside the definition of taxable income.

This differs from situations where funds would be considered taxable income for the recipient, such as compensation for services rendered or prize money. For instance, if funds are received in exchange for work performed, as a fee for a service, or as winnings from a contest, those amounts are generally subject to income tax. However, money received purely as a gift, intended for personal support without any attached conditions of service or repayment, maintains its non-taxable status for the recipient. The classification hinges on the nature of the transaction and the intent behind the transfer of funds.

Tax Implications for the Fundraiser or Donor

Donations made directly to an individual are not tax-deductible for the donor on their federal income tax return. This means that individuals contributing to a personal fundraiser cannot claim these amounts as charitable contributions, as these gifts are not going to an IRS-recognized tax-exempt organization.

Federal gift tax rules apply to donors who make substantial gifts to individuals. Each donor has an annual gift tax exclusion, which allows them to give a certain amount to any number of individuals each year without incurring gift tax or needing to file a gift tax return. For 2024, this annual exclusion amount is $19,000 per recipient. If a donor gives more than this amount to a single individual within a calendar year, the excess typically counts against their lifetime gift tax exemption.

The lifetime gift tax exemption is a much larger amount, currently $13.61 million per individual for 2024. Most donors will not incur actual gift tax liability because the vast majority of gifts, even those exceeding the annual exclusion, will fall well within this high lifetime limit. The fundraiser, if distinct from the donor, generally does not incur tax liability for simply collecting and passing on funds to the intended recipient. However, if the fundraiser retains a portion of the collected funds as a fee or for services, that retained amount would typically be considered taxable income to the fundraiser.

Distinguishing Fund Types and Their Impact

Understanding the classification of funds is crucial, as the nature of the money exchanged directly dictates its legal and tax treatment. The most common classification in personal fundraising is a Personal Gift, defined as funds given without any expectation of repayment or services in return.

In contrast, funds classified as Income are received in exchange for goods, services, or as compensation. This category includes earnings from a business venture, freelance work, or even prize money from a competition. Unlike personal gifts, funds classified as income are taxable to the recipient, who would generally need to report these amounts on their tax return. The specific circumstances surrounding the transfer determine whether the funds represent a gift or earned income.

A third category involves funds provided as a Loan, which is money given with a clear expectation and agreement of repayment. Loans are generally not considered taxable income to the recipient as principal because there is an obligation to return the funds. The intent and structure of the financial arrangement are paramount in determining how the funds are legally and fiscally categorized. Therefore, the way a fundraising effort is structured and communicated directly influences whether the money is treated as a non-taxable gift, taxable income, or a repayable loan, impacting both the recipient and the donor.