December 24th, 2018 Dominique Molina (Taxloopholes.com Tax Strategist)
The charitable donation deduction is one of the most popular ones in the Code. Under current rules, most taxpayers can deduct up to 50 percent of their adjusted gross incomes. Then, the 2017 Tax Cut and Jobs Act radically changed the landscape. The TCJA did not touch the charitable deduction section itself, as this provision is almost a sacred cow in the income tax realm. But it may have rendered it obsolete, at least in large part.
Beginning in 2019, the standard deduction doubles for most taxpayers. Moreover, the TCJA did whittle away at some other deductions, making them less desirable. For example, the heretofore limitless SALT (state and local taxes) deduction is capped at $10,000.
As a result, most observers expect the number of taxpayers who itemize their deductions to plummet. Some estimates have the proportion as low as 8 percent. Currently, about a third of U.S. taxpayers itemize.
Are Crowdfunding Contributions Tax-Deductible?
But this question still stands. 8 percent of some 250 million returns is a lot of returns. The answer to this question is a resounding “no,” unless the direct crowdfunding recipient is a recognized charitable organization.
The thinking is different. Most of us use the donor’s intention to distinguish between gifts and non-gifts. But in the income tax planning realm, intent is irrelevant. The most altruistic donations in the history of donations are not tax-deductible unless they go to:
After the aforementioned SALT limitation, some people planned to categorize state and local taxes as charitable gifts to bypass the new cap. But the IRS put the shteln on those plans.
Crowdfunding contributions may also be subject to additional tax. If the donation exceeds $14,000, the IRS may assess an additional gift tax.
What About Crowdfunding Receipts?
Under the Internal Revenue Code, all income is presumptively taxable. If an exception applies, such as the gift exemption, the taxpayer has the burden of proof. For GoFundMe receipt purposes, the IRS defines gifts as follows:
Arguably, the gift exemption does not apply if the givers had mixed motives. For example, many crowdfunding campaigns have social or political overtones. Examples include the $700,000 people gave to a crowdfunding site dedicated to Dr. Christine Blasey Ford’s “security expenses” and the $3 million-plus that people gave to an anti-Susan Collins site. The Maine Republican drew voter ire when she voted to confirm Justice Brett Kavanaugh to the Supreme Court. These donors clearly did not give solely out of “detached generosity” for these individuals.
Furthermore, crowdfunding donors must receive nothing of value. Crowdfunding recipients that give ink pens to donors could lose their tax-exempt status.
As mentioned, taxpayers have the burden of proof. So, especially if the site had more than 200 donors, you should be prepared to answer an IRS inquiry. Be sure to preserve all relevant records.
Tax laws are changing. Count on us to provide the information you need.