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Is Money Received From Crowdfunding Taxable?

by John S
Last Updated 09/15/2023
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Did you receive a 1099-K from a payment processor due to donations your received on a crowdfunding platform? The IRS provides guidance about this topic in a few places, but we'll look specifically through the section about the 1099-K. The full IRS article can be found here: https://www.irs.gov/businesses/understanding-your-form-1099-k

In the second paragraph, it mentions that payment processors (like Stripe) are required to send 1099-K forms when they pay out more than $600. However, any personal gifts (donations) from friends and family should not be counted as income and be reported on the 1099-K! The IRS clearly states: "Form 1099-K should not report gifts or reimbursement of personal expenses you received from friends and family."

If you're providing rewards or perks to people who donate, then the money they give you is not considered a gift and would be considered taxable income. But if you are running a personal crowdfunding campaign to pay for medical bills, emergency help, funerals, or many of the other types of fundraisers available on FreeFunder, and you are not providing anything in return, then the money raised should be considered a gift and not taxable income.

That's great news for people receiving donations, but what if the payment processor sends you a 1099-K anyway, and includes those donations incorrectly as income? Here's the relevant section from the article:

If You Get a Form 1099-K in Error

You may get a Form 1099-K in error when the form:

  • Reports payments that were gifts or reimbursements from family or friends
  • Doesn't belong to you or is a duplicate

If this happens:

  • Contact the issuer immediately – see FILER on the top left corner of Form 1099-K
  • Keep a copy of the original form and all correspondence with the issuer for your records

So What If The Payment Processor Won't Correct The 1099-K?

If the 1099-K is not updated, you will need to address this when filing your taxes. DO NOT SIMPLY IGNORE THE 1099-K FORM. The IRS provides this further guidance about how you should fill out your tax forms to address the incorrect 1099-K:

If You Can't Get a Corrected Form 1099-K

Report the amount on Schedule 1 (Form 1040), Additional Income and Adjustments to Income.

Example: You receive Form 1099-K for $650 your roommate sent you for their share of rent.

On Schedule 1 (Form 1040):

Enter the error on Part I – Line 8z – Other income: "Form 1099-K received in error, $650"

Adjust it on Part II – Line 24z – Other adjustments: "Form 1099-K received in error, $650"

These 2 entries note the error and result in a $0 net effect on your adjusted gross income (AGI).

As always, you should consult with a tax professional before filing your taxes, especially if you received donations from personal crowdfunding. Using the IRS guidance to help you, it should be possible to avoid paying taxes on money that was sent to you as a gift (and not in exchange for any goods or services). 

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