Crowdsourced online donation projects have become hugely popular: A 2016 report from the Pew Research Center found that 22% of American adults said they had contributed to a crowdsourced fundraising project. Most donors (68%) contributed to help someone in need. And while the majority of crowdfunding contributions were quite small — 62% of donors gave no more than $50 to any project — the amount raised can grow quickly. However, these online campaigns raise a number of tax issues for people setting up a campaign and for beneficiaries.

Several types of crowdfunding exist, and the tax consequences of each can be different (see "Crowdfunding and Income Taxes," JofA, Oct. 2015). One of the most common types is donation-based crowdfunding. This article considers only donation-based crowdfunding, also known as personal crowdfunding or cause funding, discussing available guidance and how taxpayers and their tax advisers may plan for the income tax consequences of these campaigns (see also "Crowdfunding Brings New Opportunities for CPAs," JofA, Oct. 2015). The scope of this article is limited to U.S. taxation of donation-based crowdfunding and not foreign-based campaigns.