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Non-Profit Organizations

Donation-Based Crowdfunding

By September 4, 2019No Comments

Have you ever made donations to a charity online? Did you use a crowdfunding website, such as GoFundMe? If you have, there’s a chance that you may be unable to deduct those donations on your tax return. Read on to discover if your charitable donations are actually tax-deductible, as well as if crowdfunding could be a viable fundraising option for your nonprofit organization.

What is Crowdfunding?

Crowdfunding is a method of raising money for a project by collecting small amounts of contributions from a large number of contributors. One of the most common types of crowdfunding is donation-based crowdfunding, in which contributors help raise funds for a social or charitable cause. In this situation, contributors may not necessarily be donating to a nonprofit organization, but may instead be donating to a specific cause, like helping to pay the medical bills of someone who cannot afford them. The main place one might encounter donation-based crowdfunding campaigns is through social media, community websites, and websites designed specifically to support crowdfunding efforts. Crowdfunding is, in many ways, a combination of social media outreach and traditional fundraising.

Can Crowdfunding Donations Be Tax-Deductible?

The most popular crowdfunding website for social fundraising is GoFundMe.com. This website is a donation-based fundraising platform that allows users to form a campaign and describe to potential donors the cause for which they are raising money. Generally, donations made to a campaign on a platform such as GoFundMe are considered to be “personal gifts” and are not tax-deductible. However, if the donation is made to a “GoFundMe Certified Charity Fundraiser,” it would be considered tax-deductible. This can be determined by looking for a “certified charity badge” listed on the campaign page. Tax-deductible donations will automatically receive a receipt from the PayPal Giving Fund, which is a non-profit partner of GoFundMe that collects donations and distributes them to the designated charities. There are other similar websites, such as Fundly.com, DonateKindly.org, DoubletheDonation.com, and several more.

Advantages of Crowdfunding for Nonprofit Organizations

If you are a part of a 501(c)(3) tax-exempt organization, you might want to consider using donation-based crowdfunding as a way to raise funds for your charity. A few advantages of using crowdfunding for your organization are:

  • There are no long wait periods to receive donated funds
  • Some crowdfunding websites don’t charge fees
  • It may be easier to reach people outside of your usual network
  • You can leverage small donations from a large amount of people
  • It builds transparency within the organization as people can see where the donations are coming from
  • It allows you to speak directly with those that have donated, which can help cultivate a larger community and stronger relationships

Disadvantages of Crowdfunding for Nonprofit Organizations

While there are quite a few advantages of donation-based crowdfunding, this type of fundraising might not be the right avenue for your organization for a few reasons:

  • Some crowdfunding platforms take a percentage of donations for themselves
  • It still requires some marketing strategy – it is worth considering whether or not the benefits outweigh the costs
  • Crowdfunding has become much more popular in recent years, amplifying the competition for funds
  • It can be difficult for many campaigns to meet their goal – less than 1/3 are successful. Some websites, such as GoFundMe, enforce fundraising minimums, and if the campaign does not reach that minimum, none of the funds will be received. Others, like Fundly, have no required minimums.

If you have recently donated money on a crowdfunding website, or are considering donating, make sure to check for the “certified charity badge” on the donation page, and save any receipts that prove the donation was tax-deductible. Crowdfunding websites provide an easy and affordable option of fundraising for nonprofits, while reaching a wide range of potential donors. If you have any questions about tax-deductible crowdfunding donations, or whether crowdfunding is right for your organization, please do not hesitate to contact our office at (858) 558-9200.

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