Money Raised Through Crowdfunding May Be Taxable

Crowdfunding platforms provide a way to raise money from a broad audience for projects, businesses, or personal needs. While effective for fundraising, it is important to understand that these proceeds can have direct tax consequences. The money raised through a crowdfunding campaign is not automatically exempt from taxes. The Internal Revenue Service (IRS) has specific guidelines that determine whether these funds must be reported as income, and understanding these obligations ensures recipients are prepared when filing their annual tax returns.

Determining if Crowdfunding Proceeds are Taxable

The tax treatment of money from crowdfunding depends on the nature of the transaction. The core question is whether the money was given as a gift with no expectation of return, or if it was provided in exchange for a good, service, or other benefit. This distinction separates non-taxable personal support from taxable business revenue.

Funds as Non-Taxable Gifts

Crowdfunding proceeds are considered non-taxable gifts if they are made out of “detached and disinterested generosity.” This means the contributor does not receive or expect anything of value in return. Campaigns organized to help individuals with medical expenses, disaster recovery, or other personal hardships fall into this category.

Money raised for these personal causes is not included in the recipient’s gross income and is not taxable. The responsibility for any gift tax falls on the donor, not the recipient. The federal gift tax only applies to individuals who give more than the annual exclusion amount, which for 2025 is $19,000 per person, so it is rarely a factor for crowdfunding donors.

Funds as Taxable Income

Crowdfunding proceeds are taxable income when the contributor receives a benefit in exchange for their payment. If a campaign offers a product, service, or equity in a business as a reward, the transaction is a sale or investment, not a gift. This is common for campaigns where backers fund a project in exchange for the finished product, like a new gadget or book.

This money is business revenue and must be reported as gross income, even if the business is not yet profitable. The income is recognized when the funds are received and is subject to income and potentially self-employment taxes. Any funds an employer contributes to an employee’s campaign are also considered taxable wages.

Required Tax Forms and Recordkeeping

Managing the financial side of a crowdfunding campaign requires understanding tax forms and maintaining detailed records. These steps are necessary for accurate tax filing and for substantiating the nature of the funds if questioned by the IRS. The primary document to be aware of is Form 1099-K, but your own internal records are just as important.

Understanding Form 1099-K

You may receive a Form 1099-K, Payment Card and Third Party Network Transactions, after a campaign. This form is issued by the third-party payment settlement entity (PSE) that processes the transactions, such as PayPal or Stripe, not the crowdfunding platform. The form reports the gross amount of all payment transactions, and a copy is sent to both you and the IRS.

For the 2024 tax year, the federal threshold for a PSE to issue a 1099-K is when gross payments for goods or services exceed $5,000. This threshold is part of a phased implementation of new rules. The amount reported on Form 1099-K is the gross payment volume and does not distinguish between taxable business income and non-taxable gifts. The form may be issued even if the funds are non-taxable if the gross amount exceeds the reporting threshold.

Essential Recordkeeping

For business-related campaigns, you must keep a complete log of all funds received, including contributor names, dates, and amounts. You must also retain receipts for all related expenses, which can be deducted from your gross revenue. These expenses include:

• Platform fees
• Payment processing fees
• Marketing costs
• Production or shipping supplies

For campaigns where funds are intended as gifts, recordkeeping is needed to prove donative intent. You should save screenshots of the campaign page that state the personal, non-commercial purpose of the fundraiser. Also keep copies of communications with donors that reinforce the nature of the funds as gifts and bank statements showing their use for the stated purpose.

How to Report Crowdfunding on Your Tax Return

After determining if your proceeds are taxable and gathering your documents, you must report them correctly on your tax return. The reporting method depends on whether the funds are business income or non-taxable gifts.

Reporting Taxable Business Income

If your campaign was for a business venture, the gross revenue must be reported. For a sole proprietor or single-member LLC, this is done on Schedule C (Form 1040), Profit or Loss from Business. The total funds received are entered as gross receipts or sales, which is the starting point for calculating your taxable business income.

Deducting Related Expenses

After reporting your gross income on Schedule C, you can deduct the ordinary and necessary expenses associated with the campaign. These expenses are listed in Part II of Schedule C and are subtracted from your gross income to determine your net profit or loss, which is the amount subject to tax.

Handling Form 1099-K

When you receive a Form 1099-K, the gross amount must be reconciled on your tax return. If the form includes a mix of taxable income and non-taxable gifts, you must account for the full amount. One method is to report the entire 1099-K amount as gross receipts on Schedule C and then subtract the non-taxable portion as “Returns and allowances.”

Addressing Non-Taxable Gifts

If you determine that all funds received were non-taxable gifts, you do not need to report them as income. However, if you receive a Form 1099-K for these funds, you cannot ignore it. You must address the form on your return by reporting the income and then subtracting it. This can be done on Schedule 1 (Form 1040) by reporting the 1099-K amount as “Other income” and then subtracting the same amount as an adjustment, resulting in zero net taxable income.