Crowdfunding lets you help those in need with absolute ease and minimal fuss. All you have to do is click your mouse, tap your phone, and send money off to someone who needs it, at least if the website campaign is to be believed. It doesn’t have to be cash debited from your bank account because PayPal and credit cards work, too.
You can claim a tax deduction for making charitable donations, but it can be subject to several rules. Unfortunately, these rules prevent many crowdfunding donations from qualifying.
Key Takeaways
- You may be able to claim a deduction on your tax return if you donate money through crowdfunding if it goes to a qualifying charity.
- The Internal Revenue Service (IRS) and many crowdfunding sites have tools available to help you determine whether the recipient is a verified 501(c)(3) and eligible for a tax deduction.
- You must itemize to take advantage of the charitable deduction on your tax return, so any benefit will depend on your marginal tax rate and the amount of the standard deduction you could have claimed if you didn't itemize.
- There's a yearly limit on how much you can donate before you're responsible for paying a gift tax.
Crowdfunding and Charitable Donations
You’ve most likely heard of the sites, even if you’ve never donated before: GoFundMe, Kickstarter, Crowdfunder, and numerous others. Maybe a family faces dire financial trouble due to some unforeseen catastrophe, or someone is trying to raise money to create an amazing new gadget that will save the world. You donate $50 to the appropriate account through a crowdfunding website.
The most restrictive charitable donations rule in the Internal Revenue Code (IRC) covers whom you can give money to if you want to claim a tax deduction for your generosity. Unfortunately, gifts to individuals don’t qualify. You can’t give $50 to your down-on-his-luck neighbor and claim a tax deduction for it, regardless of whether you gave that $50 to them directly or through a crowdfunding site. The IRS calls that a gift, not a donation.
Note
That family or up-and-coming entrepreneur won’t receive the full $50. The site will deduct a processing fee first. GoFundMe’s payment processing fee is 2.9% as of December 2022, plus an additional $0.30 per donation.
Other donations that are not considered charitable giving for tax purposes include funds to political parties, foreign organizations and governments, labor unions, social clubs, and for-profit hospitals and schools.
IRS-Approved Charities
You can claim a tax deduction for some contributions made through crowdfunding platforms if your donation is to a certified charity. It must be officially registered with and recognized by the government and regulated by federal or state law. In tax speak, it must be a "501(c)(3) organization."
Crowdfunding sites are well aware of this hitch, and some, including GoFundMe, have taken steps to help you out under such circ*mstances. They identify the campaigns on their websites that qualify for a tax deduction because they’re run by 501(c)(3) organizations. You’ll usually see some type of badge or emblem next to the campaign name on the site. Even sites that don’t go that extra mile will usually note that the organization is a qualified charity.
Important
The IRS offers a tax-exempt organization search tool. You should be able to claim a deduction if the crowdfunding campaign organizer’s name appears there and it’s tax exempt. Otherwise, you likely won't be able to do so.
You Must Itemize To Claim the Deduction
Assuming that the crowdfunding campaign you want to give to meets all applicable rules, you’ll have to do a little more work to claim a tax deduction in exchange for your kindness. You must itemize in order to claim a deduction for charitable giving in the year you donated. This requires completing Schedule A with your tax return.
You'll have to forgo the standard tax deduction for your filing status if you itemize. Many taxpayers find that even when they add up all their qualifying itemized deductions (not just for charitable giving but also for things like state and local taxes and medical expenses) the total is less than the standard deduction they're entitled to claim for their filing status.
Check the chart below for the standard deduction amounts for tax years 2022 and 2023.
| Single, Married Filing Separately | Married Filing Jointly | Heads of Household | |
| 2022 | $12,950 | $25,900 | $19,400 |
| 2023 | $13,850 | $27,700 | $20,800 |
You’d end up paying taxes on $2,950 more in income than necessary if you file your 2022 tax return as a single taxpayer and claim a total of $10,000 for your itemized deductions.
And your donation might not count toward your itemized deduction total even if you give thousands of dollars. The IRC limits most deductions for donations to 60% of your adjusted gross income (AGI), along with other possible limits, such as if you expect to receive a state or local tax credit for your contribution. And you must deduct its value from your claimed deduction if you received anything of value in exchange for your giving.
Warning
It’s a good idea to keep receipts to confirm any charitable donations. In fact, you must do so (and charities must provide you with a receipt) if you donate more than $250.
Your AGI is what’s left after you take certain adjustments to income, then you can subtract your itemized deductions or standard deduction from there. If your AGI is $50,000, and you donated $35,000, you’re limited to claiming a deduction for only $30,000 of your donations. As a practical matter, however, most people don’t give away more than 60% of their income.
The Gift Tax Complication
There’s one more equation to calculate. You could end up being responsible for paying the federal gift tax.
Important
You don’t have to pay the gift tax on any donation you give to a crowdfunding campaign that’s run by a qualified charity.
The IRS considers a “gift” to be a transfer of value (such as cash, stocks, or another asset) to an individual, without expectation of any form of repayment, including services or favors. The IRC allows you to give away up to $16,000 per gift recipient per year without incurring the tax in 2022, increasing to $17,000 in 2023. These exemptions are per person, so they double if you're married and file a joint return.
The donor, not the recipient, pays the gift tax. In other words, you would owe the gift tax on $10 if you were generous and donated $16,010 to one charity. The gift tax ranges from 18% to 40%, depending on the value of the gift you've given.
Frequently Asked Questions (FAQs)
I contributed to a GoFundMe account for a friend's surgery. Can I claim a tax deduction?
Unfortunately, no. Money given to individuals doesn't count as a charitable donation for purposes of a tax deduction.
My friend raised $20k for my surgery. Do I have to pay a gift tax?
You won't have to pay a gift tax because the tax is the responsibility of the donor, but you will have to include this amount as part of your taxable income. Deductions for medical expenses may help to offset the cost.
I donated to a local charity, and they gave me an expensive gift in return. Who pays here?
The precise tax consequences depend on the amount of the donation, the value of the gift, and your personal tax situation. But generally speaking, you can claim a deduction for the amount of your donation minus the amount of the gift you received in return.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
GoFundMe. "Pricing and Fees."
GoFundMe. "Choosing a Fundraiser Type."
IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2023."
IRS. "Charitable Contributions."
IRS. "What's New—Estate and Gift Tax."
IRS. "Instructions for Form 709(2022)."
