14

I'm like 99% sure this would not be income for us. Reason why is because it will never be associated with any of our bank accounts. This money will be withdrawn directly to my sister's account.

My uncle is a CPA and called me mentioning closing my GoFundMe account before it reaches 20000. He said I will pay taxes on it if it reaches that amount. However this money is going to my sister's account and will never touch mine. But we are likely to have 200 donors. Will I be held liable for taxes? Or does anyone have more on this?

I mentioned to my uncle that this money will never reach any of my accounts. He was unsure whether or not I would still be liable. So I am asking if anyone knows the legality of that? So maybe I should cross post in legal? Thanks!

  • 45
    You are going to ignore the advice of a CPA in favor of random people on the internet? Say that out loud until the silliness sinks into your brain. – Pete B. Nov 15 '16 at 15:11
  • 18
    Hiding income is tax fraud. – Pete B. Nov 15 '16 at 15:29
  • 17
    @PeteB.: Well, there seems to be pretty strong evidence that the CPA is wrong here (or has been misunderstood). I certainly don't know of any rule that says taxability starts at $20,000. The link below shows the income will be reported when it reaches that level, but that's irrelevant to whether it is taxable. If it were me I would get a second opinion from another accountant, preferably one who has some experience with crowdfunding. – Nate Eldredge Nov 15 '16 at 17:08
  • 22
    Caution with your "open another account" plan. Structuring transactions to avoid income reporting requirements can in some cases be a serious crime, even if the income in question was never taxable income in the first place. – Nate Eldredge Nov 15 '16 at 17:10
  • 5
    GoFundMe has a setup where you can assign the money to another person -- once you do so, you are unable to revoke it and only they can withdraw the money. Since you no longer have access to the money, it shouldn't be considered yours. Please review this on the GFM site and discuss it with your CPA to address your accountability and/or your sister's. – Doktor J Nov 15 '16 at 22:40
24

I'm going to post this as an answer because it's from the GoFundMe website, but ultimately even they say to speak with a tax professional about it.

Am I responsible for taxes? (US Only)

While this is by no means a guarantee, donations on GoFundMe are simply considered to be "personal gifts" which are not, for the most part, taxed as income in the US. However, there may be particular, case-specific instances where the income is taxable (dependent on amounts received and use of the monies, etc.).

We're unable to provide specific tax advice since everyone's situation is different and tax rules can change on a yearly basis. We advise that you maintain adequate records of donations received, and consult with your personal tax adviser.

Additionally, WePay will not report the funds you collect as earned income. It is up to you (and a tax professional) to determine whether your proceeds represent taxable income. The person who's listed on the WePay account and ultimately receives the funds may be responsible for taxes.

Again, every situation is different, so please consult with a tax professional in your area.

https://support.gofundme.com/hc/en-us/articles/204295498-Am-I-responsible-for-taxes-US-Only-

And here's a blurb from LibertyTax.com which adds to the confusion, but enforces the "speak with a professional" idea:

Crowdfunding services have to report to the IRS campaigns that total at least $20,000 and 200 transactions. Money collected from crowdfunding is considered either income or a gift.

This is where things get a little tricky. If money donated is not a gift or investment, it is considered taxable income. Even a gift could be subject to the gift tax, but that tax applies only to the gift giver.

Non-Taxable Gifts

These are donations made without the expectation of getting something in return. Think of all those Patriots’ fans who gave money to GoFundMe to help defray the cost of quarterback Tom Brady’s NFL fine for Deflategate. Those fans aren’t expecting anything in return – except maybe some satisfaction -- so their donations are considered gifts. Under IRS rules, an individual can give another individual a gift of up to $14,000 without tax implications. So, unless a Brady fan is particularly generous, his or her GoFundMe gift won’t be taxed.

Taxable Income

Now consider that same Brady fan donating $300 to a Patriots’ business venture. If the fan receives stock or equity in the company in return for the donation, this is considered an investment and is not taxable . However, if the business owner does not offer stock or equity in the company, the money donated could be considered business income and the recipient would need to report it on a tax return.

https://www.libertytax.com/tax-lounge/two-tax-rules-to-know-before-you-try-kickstarter-or-gofundme/

  • Thanks @bobbyscon I read through that earlier. But may be helpful to others reading – MattJamison Nov 15 '16 at 16:12
  • @MattJamison - You're welcome. I've added a bit from a tax website that mentions the $20k / 200 donors issue your uncle brought up. – BobbyScon Nov 15 '16 at 16:15
7

The $20k limit seems to be (from another answer) the threshold for GoFundMe to report the campaign. However, such a report does not change the taxability of the income. The income is either taxable or non-taxable regardless of whether the amount is $19,999 or $20,001. This is a common misconception, commonly seen when people think that income or gambling winnings are not taxable below $600, when in reality $600 is the threshold for issuing a Form 1099.

Given that, it would be foolish to close a wildly successful (*) GoFundMe campaign, because closing the campaign won't change the taxability of the income. But it will probably cut off the continued donations you may have received.

With the amount of money at stake, you should spend the couple hundred dollars to hire a CPA to look at your specific situation. Your uncle's comments are not specific to your situation at best, incorrect at worst, so don't hire him.

(*) I don't know what the median GoFundMe campaign raises, but I strongly suspect it's well below the $20k/200 donor reporting limit. Just because you have one campaign that's gone viral enough to approach that limit, doesn't mean if you close that one and start a new one, that it will go viral again, especially if it's under a new username.

  • Well, it's not necessarily foolish because the campaign is currently under his account. That means he is making a gift to his sister. Since the gift-giver is responsible for taxes, the IRS may well argue that this makes his brother responsible. If it were her account, she would be accepting gifts from random strangers, making them responsible. (If he has a lifetime exclusion, then it probably doesn't matter. But he may or may not, we don't know.) – David Schwartz Nov 15 '16 at 21:01
  • 2
    @DavidSchwartz added footnote. Closing a successful campaign would end the incoming stream of money, with no guarantee and (I'd wager) little likelihood that the replacement campaign will create a new income stream. And yet doing so does nothing to change the taxability of the first campaign. – stannius Nov 15 '16 at 22:12
5

To echo part of stannius' response. If it's taxable, there would be tax on $19,999, just a bit less than on $20,000. Your uncle may have a credential, and members here may not, but still he may be mistaken. Or he could be giving you advice on how to skirt the law.

The taxability and the $20,000 threshold are unrelated! Trying to 'avoid' the $20,000 is a completely misplaced effort.

Gifts from anyone are not taxable to the recipient. So long as nothing is received in return, it's not taxable income to her. In contrast a blogger with a "tip jar" is soliciting money in exchange for advice, entertainment, etc. that's taxable. Donations to individuals, in the circumstance you describe are not income to her, nor are they deductible to the donor.

Edit - a fellow blogger (more than that, she's my tax crush) had an article Cancer survivor gets $19,000 tax bill for GoFundMe donations which may render my answer incorrect. Other article on this story suggest that the IRS is notified, but the nature of the transfer needs to be addressed.

In my opinion, you should find a new uncle CPA.

  • 1
    If I understand correctly, it's not quite so straightforward as 'these are gifts and nontaxable'; in some cases the IRS has disagreed, though it's not always clear why. I think the cases I've seen have all been cases where a third person is in between; basically, [people donate] -> GoFundMe -> Brother -> Sister, then it is possibly taxable as a single gift from Brother to Sister (though of course you should just file a gift tax form to get it covered under your lifetime exemption). Even if the money flows to the sister directly, if the brother set it up there may be a technical issue. – Joe Nov 15 '16 at 19:56
  • Brother has already said the gifts go directly to sister. It's common for a relative or friend to set these accounts up, but not collect the money. – JoeTaxpayer Nov 15 '16 at 20:03
  • I'm just saying, I don't think the law is entirely straightforward here, even though it probably should be. I think the CPA is not necessarily wrong in making sure they cover all of their bases (and I am not sure it's right to assume that the information from the CPA has been fully accurately transcribed here; not that OP misrepresented anything intentionally, but any time information goes from [expert] to [nonexpert] you lose information). – Joe Nov 15 '16 at 20:13
  • 2
    @Joe I was thinking the same thing, given that OP has some large misconceptions about taxation. That said, "close the campaign before it hits $20k" is pretty hard to misunderstand, and yet, is completely incorrect. – stannius Nov 15 '16 at 20:18
  • 2
    @DavidSchwartz Maybe that's a good play if the donation rate had slowed down, and they are pretty sure that the donations aren't taxable, but don't want to risk the small chance of an auditor deciding otherwise. Otherwise they're trading an unknown but potentially large amount of money for an unknown but probably small risk. – stannius Nov 15 '16 at 22:59
0

From WePay (GoFundMe's payment processor) support.

I received only gifts and donations. Will I receive a Form 1099-K? As of 2015, the IRS has clarified that WePay is not required to send a Form 1099-K with respect to payments that are made solely as gifts or donations. The purpose of Form 1099-K is to report payments for the provision of goods or services, which may be subject to tax. Gifts and donations typically are not reported as income by recipients, so it is not necessary to send them a Form 1099-K.

https://support.wepay.com/hc/en-us/articles/203609483-Tax-Reporting

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.