In this Holiday Season, I’ve been seeing lots of requests to give through GoFundMe. Whenever money changes hands the Government is not far behind seeking its cut. So, let’s tax example. Missy needs a new liver and the surgery will cost $500,000. She has no insurance and asks her friends to help through a GoFundMe site. She has some very generous friends and receives $200,000. So, how does the IRS view this largess.
Is it a tax deductible gift? No. Its akin to passing the hat at the funeral.
Is it subject to gift tax? If the amount given is in excess of $14,400, then it you have to file a gift tax return not that you would owe any such taxes.
Is it subject to income taxes? That’s the tricky part. The amounts given were probably gifts given out of generosity or out of love and affection. But, in some cases the IRS has taken the position that it is income. A couple of things you has to be wary of.
First, I would not recommend deducting medical expenses on your tax return if they were financed out of a GoFundMe account. That’s double dipping.
Second, if the GoFundMe money is not used for a deductible purpose, it might be income. If it is used for lawyer’s fees or rent or it in essence replaces a lost wage because you lost your job or to fund a project from which you will use funds to live on, then perhaps its income.
One other question, is who set up the GoFundMe page in the first place? If it was the recipient, then the Service may take the position that it was income and not only income but earned income subject to self-employment taxes. For example long term disability payments are considered earned income. If they were used for medical, report the receipt and then deduct the medical, that way, you avoid the potential of being audited later.
Hopefully, the IRS will clarify the rules on this. The mantra is be careful.