Crowdfunding to raise money through websites? If you’ve been soliciting contributions to fund a business or for charitable donations or gifts, you may be required to report distributions of the money raised by filing Form 1099-K, Payment Card and Third-Party Network Transactions with the IRS.
You or your crowdfunding payment processor must also furnish a copy of the form to the person reaping the distributions, except if the payments were not exchanged for goods or services.
The reporting thresholds are:
- Calendar years 2023 and prior: Form 1099-K is required if the total of all payments distributed to a person exceeded $20,000 and resulted in more than 200 transactions. See Notice 2023-10 and Notice 2023-74.
- Calendar year 2024 and prior: The IRS has a plan for the threshold to be reduced to $5,000 as a phase-in for the lower threshold provided under the American Rescue Plan Act. See IR-2023-221.
- The ARPA lowered the reporting threshold for third-party settlement organizations, which are now only required to report if the total of all payments distributed to a payee in a calendar year exceeds $600, regardless of the number of transactions. However, implementation of the lower threshold has been delayed.
Crowdfunding distributions may be made to the crowdfunding organizer or directly to the individuals or business that solicited funds. A Form 1099-K must be filed with the IRS and furnished to the person or entity receiving the payments for the year the distributions were made.
If you receive a Form 1099-K, don’t think it automatically means the amount reported is taxable to you just because you received the form. If nontaxable distributions are reported on Form 1099-K, you should:
- Report the transaction on Form 1040, Schedule 1 as other income showing the gross proceeds from the distributions reported on Form 1099-K.
- Report the transaction on Form 1040, Schedule 1 as other adjustments showing the nontaxable amounts of distributions.
But the net effect on income in either case is $0.
Full explanations
You risk being contacted by the IRS for more information if you don’t report the transaction on your tax return. Then you will have to explain why the crowdfunding distributions weren’t reported on your tax return.
Gross income includes all income from whatever source unless excluded by law. Whether crowdfunding distributions must be included in your gross income depends on all the facts and circumstances of the distribution. So let’s say you received property. If you received it as a gift, it’s not includable. In this example, you may be the detached and disinterested recipient of generosity who is not expecting anything in return, even though you were the reason the campaign was organized. But if the contributions to crowdfunding campaigns are made by an employer for the benefit of an employee, the employee has to include the largesse in gross income.
Crowdfunding organizers and those on the receiving end should keep complete and accurate records for at least three years.
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