After major disasters like the devastation of hurricanes in Houston and Florida, people are always eager to donate to help the victims. These days it’s easier than ever to donate online to existing charities or through crowdfunding sites like GoFundMe, Causes.com, or Crowd Rise. Philanthropy in these times of great need is wonderful, but when it comes to donations to crowdfunding sites, you’re probably wondering, is my donation going to be tax deductible?
The answer to that question depends on the type of campaign to which you donated.
Donation to a campaign for an individual or small group
If a campaign is for the benefit of a specific person – or a specific, small group of people – your donation is not likely to be tax deductible. Usually, to be tax deductible, a donation must be made to a large, indefinite group. According to the IRS, one of the requirements for a donation to be tax deductible is that it be made for the benefit of a group that can be considered a “charitable class.” To be considered a charitable class, a group must be “large enough or sufficiently indefinite that the community as a whole, rather than a pre-selected group of people, benefits when a charity provides assistance [i.e., a group that is] large enough that the potential beneficiaries cannot be individually identified and providing benefits to this group would benefit the entire community.”
Additionally, if you donated to an individual through a crowdfunding campaign, especially one on a site like GoFundMe, that donation is probably considered a personal gift. Personal gifts still are not tax-deductible, but they won’t otherwise impact your taxes unless you gave more than the 2017 gift-tax exclusion amount of $14,000 to any one individual. If you did, you might have to file a gift tax return.
Donation to a campaign for a qualified charity
As crowdfunding becomes increasingly popular, more and more crowdfunding campaigns are supported by qualified charities. If the campaign is backed by a qualified charity, then the donation you make is almost certain to be tax-deductible. However, just because a crowdfunding campaign claims to be supported by a qualified charity, doesn’t mean that it is. It is always important to read the fine print.
Crowdfunding sites like Causes.com and CrowdRise only allow U.S.-based 501(c)(3) nonprofits that have valid listings on the website Guidestar.org to fundraise on their platform. Even so, the Causes.com FAQ page about donations states, “We cannot guarantee that every donation you give through Causes is a tax-deductible donation to the extent allowed by law. You must check with the nonprofit organization to ensure that your donation is tax deductible.”
On the GoFundMe’s FAQ page that discusses the tax deductibility of donations made to campaigns on their platform, it states, “Only donations made to GoFundMe Certified Charity campaigns (valid for U.S registered 501(c)(3) charitable organizations only) are guaranteed to be tax-deductible…” The site has a “Certified Charity” badge for those qualified charities to show that they meet the requirements.
Other Donation Options
It may be tempting to donate to a specific cause promoted by a crowdfunding campaign, but in cases of natural disasters, it may not be necessary. According to Publication 8388, Disaster Relief: Providing Assistance through Charitable Organizations, the IRS notes that it may make more sense to find an existing charity to which to donate. Existing charities like United Way, the Salvation Army, or the Red Cross provide targeted disaster relief and emergency hardship assistance. Additionally, “community-based organizations and charities with a local presence often know best what assistance is needed and understand the social and cultural context of a disaster. Working with and supporting these existing organizations may prove to be a more efficient use of disaster relief resources.”
Additionally, if you want to make sure that your donation to an existing charity goes toward helping people affected by a recent disaster event, you can indicate that you want your money to go toward flood or hurricane relief when you make your donation. You cannot, however, earmark your donation to benefit a specific individual because federal law dictates that a “qualified charity must be given full control over the use of donated funds.”
The Bottom Line
Crowdfunding is still a relatively new way to donate money for charitable purposes, and there have not been any formal rulings from the IRS on the subject. Until there are, we will have to use the existing guidance to determine if donations made to a crowdfunding campaign are tax-deductible. Information provided by the crowdfunding sites’ terms of service can also be helpful in determining the best way to treat crowdfunding donations.
Save the receipts you receive for any donations you make during the year, and if you have a question about whether a donation is tax deductible, your CPA will be happy to help.