These sites, also known as crowd funding, provide a way for an individual or group to raise funds for business or personal purposes through a website that acts as a middleman. The website accepts donations through credit cards, takes their fee, and then distributes cash to the individual. The link to the site is often shared via other social media such as Facebook and occasionally even gets conventional press. In 2013 crowdfunding sites raised $5.1 BILLION per an industry report.
GoFundMe is a website that allows people to list a ‘needed’ cause and request contributions from others throughout the world. Common requests include illness and accident victims, but also other ‘needs.’ In addition to the 5% that GoFundMe deducts from each transaction, WePay collects 2.9% and 30 cents from each GoFundMe transaction.
GoFundMe address tax situations directly on their website by stating that no contribution deduction is allowed because the amounts are personal gifts and charitable contributions may not be deducted when paid to an individual. This determination leads to the other side of the gift: the recipient, and GoFundMe’s position is also that the recipient receives tax free gifts from individuals, not payment for work, product or services.
The website does offer a Certified Charity Campaign which sends the funds directly to a registered nonprofit, which would appear to be deductible.
If the recipient of the funds receives more than $20,000 they will receive a 1099-K from the site. The professional tax industry agrees with GoFundMe tax position discussed above and would report that amount on Line 21 of Form 1040, then deduct the same amount as non-taxable fits received and attached an explanation that it was personal gifts from individuals funded through the GoFundMe website.