Individual donors set records on the fundraising site GoFundMe for how many gave to a single cause (the Official George Floyd Memorial Fund) and how much was raised for a campaign (America's Food Fund). The generosity (along with the need) seems to be continuing this year, with more new fundraising campaigns set up in January than in May 2020, when things were arguably worse.
So it's a good time to remind givers and recipients of what their tax obligations are, especially because there are big differences depending on whether the money is ultimately going to a personal cause or a nonprofit.
If you help someone individually — say, to pay for groceries, a medical bill or expenses from a horrible tragedy — the Internal Revenue Service considers this to be a personal gift. That’s true whether you are helping directly by using an app like Venmo after responding to a request on Twitter, Instagram or TikTok, or you go through an intermediary site such as GoFundMe. The donor doesn't get a tax deduction for the donation, and, in turn, the recipient doesn't have to report it as taxable income.
There are some nuances. The donation could be considered taxable for recipients if they're giving benefactors something in exchange for the donation, such as a good or service. And very generous donors should remember that they do have to report the gift to the IRS if it's more than $15,000 to a single person in a year.
If the solicitation is from an individual, but they're raising money for a charitable organization (that's recognized by the IRS as such), then the donation is eligible for a tax deduction. If you like the idea of helping people directly and want to maximize your tax savings, then the most efficient way to give is typically by using the nonprofit arm of a site like GoFundMe. There are designated GoFundMe causes you can give to that are eligible for tax deductions, and the money in turn gets routed to those in need.
It's also wise to use third-party sites like GoFundMe because they often provide guardrails, making it difficult for individuals who say they're fundraising for an organization to access the funds themselves. GoFundMe also says it provides a guarantee, so if a donation is made to a cause that turns out to be bogus, you'll be reimbursed up to $1,000.
For tax years 2020 and 2021, taxpayers who take the standard deduction (which is a set amount deducted from taxable income) are eligible for a special additional charitable deduction thanks to pandemic-relief legislation. For 2021, single filers can deduct up to $300 for cash contributions while joint filers have up to $600.
As always with tax issues, keep careful records. Print out a receipt whenever you make a donation and be sure it includes the date and amount. A charity is required to send you a receipt when a donation exceeds $250, but it's smart to have a record of smaller gifts, too, so you don't forget when filing returns months later.
For those who are receiving big sums, be aware that there may be reporting requirements for the firms that process the transactions. Typically, when there are more than 200 transactions and the amount exceeds $20,000, the IRS is supposed to be alerted, and a special form gets sent to recipients. Not all charitable online platforms do this though, if goods and services aren't exchanged.
There may not be any actual taxes due, but if those receiving funds don't notify the IRS about the money when filing their annual returns, it could be a red flag for an audit.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she oversaw tax coverage for Bloomberg News.
©2021 Bloomberg L.P.