Is Crowdfunding a Fundraising Option for Your Nonprofit

Crowdfunding platforms like Kickstarter, GoFundMe, and Indiegogo have become popular tools for nonprofit organizations to raise money and engage potential supporters, especially younger adults. However, the tax implications of crowdfunding can be complex and different from traditional fundraising methods.

IRS Technical Definition

The IRS defines crowdfunding as a method of raising money through websites by soliciting contributions from a large number of people. While crowdfunding is often used by small businesses to raise cash or fund for-profit projects, it can also be used to solicit donations for charitable causes. For example, your organization might run a crowdfunding campaign for a specific project or urgent need among your constituents, or your supporters might organize campaigns on your behalf.

Reporting Requirements

Under tax law, crowdfunding websites or their payment processors may be required to report distributions of funds by filing IRS Form 1099-K, "Payment Card and Third Party Network Transactions." This form must also be provided to the recipient of the distributions, which could be your nonprofit or an organizer 4. As of 2023, the reporting threshold was met if the total payments distributed exceeded $20,000 in gross payments from more than 200 transactions or donations. However, the threshold has been significantly lowered. In 2025, the threshold is met if the total payments distributed exceed $2,500 in gross payments, regardless of the number of transactions or donations. This threshold is scheduled to drop to only $600 beginning in 2026.

Various Situations

The issuance of Form 1099-K does not necessarily mean the distributions are taxable to recipients. For instance, if a supporter starts a crowdfunding campaign that raises more than $2,500 for your organization and receives Form 1099-K, the distributions may not be taxable to the supporter. However, donors to the campaign might not be able to deduct their contributions if the campaign was not run by your nonprofit. Another scenario involves your organization running a campaign to raise funds for a specific client with immediate medical needs. If contributions are made out of detached and disinterested generosity, they may be considered gifts and not taxable to the client. Crowdfunding recipients should consult a tax professional to be certain.

Fit Organization and Supporters

Despite the complicated tax rules, crowdfunding remains a potentially valuable fundraising method, especially when federal government funding is drying up. Contact a tax professional to ensure compliance with IRS rules and provide the right information to your supporters.