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Tax Rules for Crowdfunding: When Donations Are Taxable or Deductible

nnews money

2026-01-28

11 min read

Who pays taxes on GoFundMe money? Learn when crowdfunding is taxable, when donations are deductible, and what both donors and recipients must report in 2026.

Stop guessing — here’s how the IRS treats crowdfunding in 2026

Crowdfunding can feel like a financial lifeline for people and causes, but it creates confusion at tax time: who reports what, when are donations deductible, and when do platforms send a 1099? With IRS data-matching, broader payment platforms issuing more reports, and growing use of crypto and fiscal sponsors, the rules matter more than ever. This guide cuts through the noise and gives donors and recipients clear, actionable steps to stay compliant in 2026.

Quick bottom line

Personal crowdfunding (GoFundMe-style campaigns that raise money for an individual’s medical bills, rent, legal fees or personal projects) is generally treated as gifts or non-taxable assistance to the recipient — and not tax-deductible for donors. But there are major exceptions: if funds are payments for goods or services, payments to a business, or structured through a qualified charity, tax treatment changes. Meanwhile, payment platforms increasingly issue Form 1099-K, so recipients must reconcile platform reporting with the taxable portion of receipts.

Why this matters in 2026: trends that affect crowdfunding taxes

Expanded payment reporting. Since mid-2020s reforms and platform policy shifts, more third-party payment processors routinely issue 1099-Ks for lower reporting thresholds. Expect more matching between platform reports and IRS returns — see reviews of modern donation flows for context (producer mobile donation flows).
Crypto crowdfunding growth. Donors now commonly contribute crypto. The IRS treats donated cryptocurrency differently depending on recipient type (charity vs. individual) and whether the donor receives value in return; emergent platform governance and marketplace policies are relevant here (marketplace governance tactics).
Greater IRS scrutiny. The IRS is using data analytics to identify misreported income and improper charitable deductions, increasing the likelihood of audits for large campaigns or mismatched 1099-Ks — organizations and individuals should consider an operational audit of their reporting stack (how to audit your tool stack).
Rise of fiscal sponsorships. Organizers use 501(c)(3) fiscal sponsors to make personal campaigns appear deductible — that can be legitimate but requires formal agreements and documentation. Creators and small organizers may also combine fiscal sponsorship with creator monetization approaches such as micro-subscriptions and creator co-ops.

Core IRS principles applied to crowdfunding

Apply these guiding rules when evaluating a fundraiser:

Donations to individuals are not deductible. Only contributions to qualified tax-exempt organizations (typically 501(c)(3) charities) are deductible for U.S. federal income tax purposes.
Gifts are generally not taxable to the recipient. If funds are true gifts — given out of detached generosity with no expectation of goods or services — the recipient typically does not include them in income. The donor, however, may need to file a gift tax return if a single gift to one individual exceeds the annual exclusion.
Payments for goods or services are income. If contributors receive perks, products, event tickets, or business-like rewards in return, those payments are taxable to the recipient as income (either business income on Schedule C or other income on Schedule 1). If your campaign looks like a preorder or product launch, treat it like any other business sale and align with packaging and fulfilment playbooks (precision packaging & micro-retail).
Platform reporting can trigger tax forms. Payment processors that meet reporting thresholds will issue 1099-Ks. A 1099-K does not automatically mean the reported amount is taxable — recipients must reconcile it to their books and report the taxable portion.

What counts as a "qualified charity"?

To be tax-deductible, a donation must go to an organization recognized by the IRS as tax-exempt under section 501(c)(3) (or another deductible status). Donors can confirm status using the IRS Tax Exempt Organization Search (TEOS) tool. Many platforms have separate flows for “Charity” campaigns that route funds directly to qualified nonprofits — these typically generate official donation receipts.

Common crowdfunding scenarios and tax outcomes

1) Personal medical fundraiser (GoFundMe for an individual)

Scenario: Friends and strangers donate to help pay medical bills for an individual.

Donors: Not deductible. Contributions to an individual are personal gifts, not charitable contributions.
Recipient: Usually not taxable if funds are true gifts used for personal expenses. However, if the campaign gives donors goods/services (e.g., branded merchandise) or the campaign operates like a business, some or all proceeds may be taxable.
Platform reporting: The payment processor may issue a 1099-K if thresholds are met. The recipient must reconcile the 1099-K and exclude bona fide gifts from taxable income — practical developer and producer reviews of donation flows show how processors report gross amounts (producer review: mobile donation flows).

2) Campaign run through a registered charity

Scenario: You create a fundraiser that routes donations to a 501(c)(3).

Donors: May claim a charitable deduction if they retain records (receipts) from the charity and itemize deductions — subject to the usual AGI limits and substantiation rules.
Recipient charity: Charity recognizes the revenue as charitable gifts and must follow nonprofit reporting rules. Donors should receive written acknowledgements for gifts $250 and up.
Organizers: If you’re just the organizer and funds go to the charity, you generally don’t report them as income — but maintain documentation showing how funds flowed. Platforms’ marketplace governance rules and fee structures can affect whether a sponsor truly controls funds (marketplace governance).

3) Crowdfunding for a business, creative project, or preorder campaign

Scenario: You raise money to launch a product, pay contractors, or produce a film and you offer rewards or preorders.

Donors: Not deductible — they are customers purchasing goods/services.
Recipient: Taxable business income. Funds should be reported on Schedule C (or the appropriate business return), and self-employment taxes may apply.
Recordkeeping: Track costs of goods sold (COGS), fulfillment expenses, and refunds. Net taxable income = gross receipts minus deductible business expenses. For fulfilment and logistics best practice see micro-fulfilment and pop-up reviews (advanced micro-fulfilment).

4) Crypto donations to an individual or charity

To a charity: Donors can generally deduct the fair market value of well-documented gifts of appreciated crypto, and they avoid capital gains on the transferred asset — provided the charity accepts crypto and has policies to sell or hold it per IRS guidance.
To an individual: Crypto sent to a personal wallet is treated as a gift (not deductible for the donor), and the recipient does not include the received crypto in income. If the recipient later sells the crypto, capital gains tax applies based on the donor’s original basis rules if applicable — this is complex and often requires professional guidance. Marketplace governance and creator monetization models may affect how crypto flows are structured (micro-subscriptions & creator co-ops).
Platforms: Some crypto platforms provide transaction records; keep timestamps and Fair Market Value (FMV) at time of transfer for tax reporting.

Forms and filings to watch

Form 1099-K — issued by payment processors for third-party network transactions that meet threshold rules. In 2026, more platforms issue 1099-Ks at lower thresholds than a few years ago; verify amounts and reconcile to your records. Producer reviews of donation flows show how gross amounts can be reported (producer review: mobile donation flows).
Form 1099-MISC / 1099-NEC — if you pay contractors or receive non-employee compensation through a campaign, these forms may apply.
Form 709 (U.S. Gift Tax Return) — donors should file this if they make gifts to any individual that exceed the annual exclusion amount in a single year. Filing does not necessarily mean tax is due; it tracks use of the lifetime exclusion.
Schedule C or Schedule 1 (Form 1040) — recipients who run the fundraiser as a business report revenue and expenses on Schedule C; otherwise, taxable receipts may appear as “Other income” on Schedule 1.
Charitable substantiation — donors must retain written receipts for deductible gifts of $250 or more, and keep records for noncash donations as required by IRS rules.

How to reconcile a 1099-K with non-taxable crowdfunding proceeds

Payment platforms sometimes send 1099-Ks showing the total gross payments processed for a campaign. If you receive a 1099-K, it’s your responsibility to:

Download the detailed transaction report from the platform.
Separate bona fide gifts from payments for goods or services.
Report only the taxable portion on your return (Schedule C or Schedule 1), and be prepared to show documentation if the IRS asks.

Tip: Keep a spreadsheet that maps each donation on the platform report to a category: Gift, Reimbursement, Sale, or Charitable Pass-through.

Practical recordkeeping checklist (for recipients)

Save platform reports and payment processor statements every month.
Keep donor lists and notes indicating whether funds were gifts, payments, or earmarked for a charity. Use signal and inbox prioritization techniques if you manage many donor messages (signal synthesis for team inboxes).
If you use a personal account, open a separate bank account for the campaign to avoid commingling.
Retain receipts for expenses paid from the campaign (medical bills, contractor invoices, shipping costs).
If you route money through a fiscal sponsor or charity, keep the written agreement and charity receipts. Understand platform governance and fee routing policies (marketplace governance).
For crypto donations: capture transaction ID, date/time, FMV in USD at receipt, and sender wallet details.

Practical checklist (for donors)

Confirm the recipient is a qualified charity if you want a deduction — use the IRS Tax Exempt Organization Search.
Keep platform receipts and charity acknowledgements for any potentially deductible gift.
Don’t assume contributions to a personal campaign are deductible.
If you plan to give a very large gift, consult a tax advisor about filing Form 709 and leveraging trusts, donor-advised funds, or family gifts strategies.
For crypto gifts to charities, ask the charity whether they accept crypto and can properly acknowledge FMV at transfer.

Fiscal sponsorship: a lawful shortcut — but with caveats

Fiscal sponsorship lets an individual or project raise funds through a 501(c)(3). Donors can get deductions because the 501(c)(3) receives and controls the funds. It’s widely used by film projects, grassroots initiatives, and emergency relief efforts. But fiscal sponsorship must be genuine: the nonprofit must retain control over funds, not merely act as a passthrough. Put the agreement in writing, document how funds will be used, and expect fees for administration. Misusing fiscal sponsorship to make personal donations deductible is risky and can trigger IRS scrutiny. For creators and small teams using sponsor models, consider modern creator monetization and governance guidance (micro-subscriptions & co-ops).

Red flags that trigger audits or questions

Large 1099-Ks that don’t match income reported on tax returns.
Campaigns labeled as “charity” but routing funds to an individual without a formal nonprofit intermediary.
Frequent refunds or chargebacks with mismatched records.
High-value crypto transfers lacking FMV documentation.

Real-world examples and case studies

Example A — Medical fundraiser that’s truly a gift

Jane raises $35,000 for emergency surgery on GoFundMe. She receives a 1099-K because the payment processor reports gross receipts above the threshold. Jane documents that all donors were friends, no goods were offered, and funds were used to pay medical bills. Jane excludes these gifts from income but keeps bank statements, platform transaction logs, and copies of medical invoices in case of IRS inquiry.

Example B — Creative campaign selling preorders

Tom raises $80,000 to build a gadget and ships rewards to backers. He receives a 1099-K and reports the campaign as business income on Schedule C. Tom deducts COGS and manufacturing expenses, and pays self-employment tax on net profit. If you're running a preorder-style campaign, review packaging and micro-retail tactics for fulfilment and margins (precision packaging & micro-retail).

Example C — Celebrity or impersonation campaigns (fraud risk)

High-profile stories in late 2025 and early 2026 showed campaigns launched in celebrities’ names without authorization. Donors should verify campaign authenticity; recipients or impersonators can end up facing legal and tax complications. If you’re a donor and discover a fraudulent campaign, contact the platform immediately and request a refund — and keep records of your refund request. Tools and approaches for authenticity and local verification are evolving (see local reporting and verification approaches such as hyperlocal reporting via Telegram channels and advances in agent-based verification (avatar/context tools)).

State tax and other considerations

State tax treatment varies. Some states follow federal rules closely; others have differences on gift, income, and sales tax. If you received crowdfunding for business activities, check state sales tax obligations for shipped goods or digital products. For large, multistate campaigns, consult a state tax specialist.

When to call a tax pro

Call a tax professional if any of these apply:

You received a 1099-K and your records don’t match.
Your campaign raised a large sum and you’re unsure whether it’s gifts or income.
You’re using fiscal sponsorship or running a campaign through a charity and want to confirm compliance.
You received or gave large crypto donations and need cost-basis and FMV guidance.
You plan to gift more than the annual exclusion amount and want estate planning coordination.

Action plan: 7 steps to handle crowdfunding taxes confidently

Classify each campaign up front: personal gift, charity, or business.
Open a dedicated bank account for the fundraiser.
Download platform transaction reports monthly and reconcile them to bank deposits.
Ask donors for contact info and document the intended use (medical bills, business costs, etc.).
If using a fiscal sponsor, get a signed agreement and the charity’s EIN.
Keep receipts for all expenses paid from the campaign and track refunds/chargebacks.
If you receive a 1099-K, reconcile it, categorize amounts, and report only taxable portions with supporting documentation. Producer reviews of donation flows can help you understand what platforms report (producer review).

Final thoughts — the prudent default

In 2026, crowdfunding is mainstream and the IRS is watching. The safe, prudent default is to document everything, avoid relying on informal promises of deductibility, and treat any campaign with business-like characteristics as taxable. Donors who want a tax break should route funds to established charities or use donor-advised funds. Recipients should separate genuine gifts from business revenue, keep strong records, and consult a tax advisor when in doubt. For teams and creators, modern governance and monetization guidance can reduce risk (creator co-op models).

Call to action

Got a fundraiser or thinking about donating? Download our free crowdfunding tax checklist, or book a 15-minute consultation with one of our tax advisors to review your campaign records before filing. Stay informed — proper documentation today avoids audits and headaches tomorrow. For operational checks on your reporting stack, see our recommended audits and tool reviews (how to audit your tool stack).

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