Donation crowdfunding
Ask the public to give money online to a cause or project, with nothing promised in return. Nothing to repay and no shares given up, but people rarely give to a business run for profit, and donors cannot deduct gifts to one.
- No security
How it works
You set up a fundraiser on a donation crowdfunding platform, explain what the money is for, and share it with your supporters and community. People give because they want to help, not for a reward or a share. It works best for a clear cause people care about: a community space, a nonprofit's program, or rebuilding after a fire or flood.
Tax for you: the IRS says that when people give to a crowdfunding campaign out of generosity and expect nothing in return, the money is a gift and is not income of the person the campaign was for. When contributors get goods or services in return, it is not a gift (that is rewards crowdfunding). Whether money raised for a business counts as a gift depends on the facts, so ask a tax professional before you launch. The platform or its payment processor may send a Form 1099-K; it does not by itself mean the money is taxable, but keep careful records of the campaign and how you spent the money for at least three years.
Tax for donors: people can deduct only gifts to qualified organizations, such as charities that the IRS recognizes. Gifts to a business, or earmarked for a particular person, are not deductible. If your organization is a qualified charity, say so; if it is not, do not suggest that gifts are tax-deductible.
Keep it honest: describe exactly what the money is for and use it that way. The FTC Act bans deceptive practices, and the FTC has acted against a crowdfunding creator who spent backers' money on himself.
Not an investment: if you offer people a share of the business, its profits or interest, you are selling securities, and the securities laws apply (see Regulation Crowdfunding).
Upsides and downsides
Upsides
- Nothing to repay and no shares given up
- Builds a group of supporters around your cause
- Can be set up quickly
Downsides
- People rarely give to a business run for profit
- Raises modest sums for most campaigns
- Gifts to a business are not tax-deductible for donors
Risks
- A campaign that misleads donors, or spends the money on something else, can bring complaints and FTC action
- The tax treatment of money raised for a business is not always clear-cut
- A failed campaign is public
What it costs
- How it is priced
- Platform and payment processing fees, if the platform charges them
- Costs that are easy to miss
- Payment processing fees on each gift, and any platform fee
- Time spent preparing, promoting and updating the campaign
- Possibly income tax on the money, depending on the facts
Usually modest. Depends on your cause, your network and how widely the campaign is shared.
Planning a campaign? What a crowdfunding campaign leaves you: see what is left after fees and rewards
Does it fit?
Could fit when
- You are raising for a community, charitable or social project
- You are a nonprofit with supporters who would back the cause
Unlikely to fit when
- You are a business raising for your own profit, which people rarely donate to
- You need large sums
- You need the money within days
Who can use it
- Business types: Sole proprietorship, Partnership, LLC, S corporation, C corporation, Benefit corporation, Cooperative, Nonprofit
- Open to businesses with no sales yet
- A cause or project that people will give to without getting anything back
- Each platform's own rules on who and what can raise money
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all crowdfunding and community finance
0%
0 of 3 ticked
- Fundraiser plan
- Audience ready
- Tax treatment checked
Regulation and protections
Regulators: Federal Trade Commission (FTC); Internal Revenue Service (IRS).
Who runs it: Private providers, nationwide.
Not a financial product. The FTC Act bans deceptive and unfair practices, which covers misleading fundraisers. Platforms set their own rules.
Types of provider: Donation crowdfunding platforms.
Also consider
What has changed
No changes since this page was published. It was last checked against its sources on October 20, 2026.
Sources
- IRS Tax Tip 2022-120: Some things to know about crowdfunding and taxes · checked October 20, 2026
- IRS Publication 526 (2025): Charitable contributions · checked October 20, 2026
- FTC: Crowdfunding project creator settles FTC charges of deception (June 11, 2015) · checked October 17, 2026
- SEC: Common startup securities · checked October 20, 2026
Something wrong or out of date?
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