Wise Giving Wednesday: Donor Guidance on Crowdfunding

By H. Art Taylor
President & CEO BBB Wise Giving Alliance
Jul 17, 2020

From time to time, we are asked to provide tips on crowdfunding sites. As a result, we wanted to once again share our top tips on making donations through these platforms.

The guidance below is focused on donation-based crowdfunding, where people and/or organizations are asking for support of a cause or a personal need. This guidance is not intended for rewards-based crowdfunding where someone raises money to make a product with the promise participants will get a sample, or equity-based crowdfunding which operates like an investment where you are promised shares and/or a portion of profits for a business that is being established.

In turn donation-based crowdfunding platforms can be broken down into for-profit sites as well as crowdfunding platforms that are run by charitable organizations themselves such as GlobalGiving Foundation and DonorsChoose. Below are tips to keep in mind for donation-based crowdfunding sites.

Give to people and organizations you know. While charities can be vetted, it is much more difficult to assess the trustworthiness of individuals who have posted a request for assistance. As a result, it is safest to give to crowdfunding postings of people you personally know. If that is not possible, the next best circumstance is to find out if the funds collected by a posting are going to be forwarded and distributed by an established charitable organization. In that case, the organization can be checked out and the involvement of a third-party organization can provide an additional level of oversight and assurance.

Not all crowdfunding sites operate alike.  Some crowdfunding platforms do a better job of vetting postings and projects that appear on their site than others. Review the site’s description of its procedures. If they do take precautions, they generally announce that fact loudly to help encourage giving. For example, if a posting is claiming to be raising funds to help a victim and/or their family after a tragedy or disaster one site holds the funds collected and distributes them directly to the identified family. For other sites, the giver is relying on the individual to follow through on their promised assistance.

See if the posting describes how funds will be used. Vague descriptions of how the collected funds will be used should also be a yellow caution light? Thoughtful collections will take the added step of identifying and verifying needs before money is raised.

Don’t assume pictures represent an official connection to the person or family identified.  Unfortunately, some crowdfunding postings may be using pictures of victims without the permission of their families. As a result, you can’t assume the poster has an official connection. Again, each site has different rules on what they allow. As a donor, it is up to you to approach with caution, especially after a tragedy or disaster.

Your contribution may not be deductible as a charitable gift. If a crowdfunding posting is claiming to be helping a specific named individual or family, donors in the U.S. generally cannot take a federal income tax deduction, even if the individual or family is in need. See IRS Publication 526, page 6 for more information on this subject.  On the other hand, if you are giving to a charitable organization that is helping a group of individuals and you are not restricting your gift to a specific person, then you can take a deduction. Additional factors should also be considered such as whether the crowdfunding site is being run by a charity or a for-profit firm. See a previous Wise Giving Guide article for more information about how this might impact deductibility.

Video of the Week

This week, we have an interview featuring Miki Farris, Executive Director of Infant Crisis Services (a BBB Accredited Charity) about how COVID-19 is impacting their programs and the communities they serve.

Recent Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.

H. Art Taylor, President & CEO
BBB Wise Giving Alliance

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