Crowdfunding is a relatively new way to gather donations from others for things like mission trips. Well known examples of crowdfunding websites include “Gofundme”, “Kickstarter” and “Patreon”. Since it is so new, there is not a lot of official IRS guidance on the subject.
According to an IRS letter published in 2016 (which you can read at https://www.irs.gov/pub/irs-wd/16-0036.pdf), you must include all crowdfunding revenue as income, unless you can show it is-
- Loans that must be repaid,
- Capital contributed to an entity in exchange for an equity interest in the entity (like investing in a business), or
- Gifts without anything received in return or any expectation of something being received in return.
Even if you have the documentation to prove that it shouldn’t be taxable income, you can still have a potential problem.
If you raise a lot of money crowdfunding, that crowdfunding app or website will issue you a 1099-K form to report the income, as well as sending a copy to the IRS. If you don’t report that 1099-K on your return as taxable income, IRS can notice that mismatch and decide to open an audit. You would probably end up having to explain to an auditor about why it shouldn’t be included as taxable income.
As you can see, even if you do the right thing, you could still end up having to have a lengthy conversation with the Internal Revenue Service. Fortunately, Clergy Financial Resources can help respond to IRS issues with our Tax Resolution Services. Visit our website at https://www.clergytaxnet.com/services/tax-resolution/ for more details.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
For more information or if you need additional assistance, please use the contact information below.
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