Receiving donations legally means picking a lane and following its rules. If you’re collecting money for yourself or someone you know through a platform like GoFundMe, you can start immediately, but the IRS may treat some of what you raise as taxable income. If you want donors to claim a tax deduction, you need a recognized 501(c)(3) nonprofit, which requires incorporation, an IRS application, state fundraising registrations, donor receipts, and annual filings you cannot afford to miss. Here is how to receive donations legally under either path, and what each one costs you in paperwork and compliance.
Collecting Donations as an Individual
Crowdfunding platforms let anyone raise funds for personal needs like medical bills or disaster recovery. The money goes directly to you. No separate legal entity stands between you and the funds, and no one grants your donors a tax deduction.
The catch is that “donation” is not a tax category. Whether crowdfunding proceeds count as taxable income depends on the specific facts of each campaign. When contributors give out of pure generosity and receive nothing in return, those contributions may qualify as gifts, which are not included in the recipient’s gross income.1Internal Revenue Service. IRS Reminds Taxpayers of Important Tax Guidelines Involving Contributions and Distributions From Online Crowdfunding The IRS has stressed that contributions to crowdfunding campaigns are not necessarily the result of detached and disinterested generosity.2Internal Revenue Service. Money Received Through Crowdfunding May Be Taxable; Taxpayers Should Understand Their Obligations and the Benefits of Good Recordkeeping If a campaign offers rewards, products, or any other benefit in exchange for contributions, the amounts are generally taxable income.
The platform or its payment processor may also file Form 1099-K reporting the distributions to the IRS, though under current law that reporting is not required when payments are not made in exchange for goods or services.1Internal Revenue Service. IRS Reminds Taxpayers of Important Tax Guidelines Involving Contributions and Distributions From Online Crowdfunding You are still responsible for reporting taxable crowdfunding income even if no 1099-K arrives. Keep detailed records: what the campaign was for, how much was raised, and whether contributors received anything in exchange.
One more thing worth knowing, though the obligation falls on your donor rather than you: the 2026 federal annual gift tax exclusion is $19,000 per donor per recipient. A single donor who gives you more than $19,000 in a year generally must file Form 709, though no tax is owed until they exceed the $15,000,000 lifetime exemption.3Internal Revenue Service. 4Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. The statute also prohibits distributing earnings to private individuals, substantial lobbying, and participating in political campaigns.
The standard application is Form 1023, which requires a detailed description of your planned activities, governance structure, and financial projections. The IRS user fee is $600. Smaller organizations may qualify for the streamlined Form 1023-EZ at a reduced fee of $275.5Internal Revenue Service. Form 1023 and 1023-EZ: Amount of User Fee To use the streamlined form, annual gross receipts cannot have exceeded $50,000 in any of the past three years (or be projected to exceed that amount in any of the next three years), and total assets cannot exceed $250,000.6Internal Revenue Service. Instructions for Form 1023-EZ
Before you submit, check your governing documents for two clauses the IRS will look for. First, a dissolution clause stating that if the organization shuts down, remaining assets go to another tax-exempt entity or a government body for a public purpose.7Internal Revenue Service. Does the Organizing Document Contain the Dissolution Provision Required Under Section 501(c)(3) Second, language confirming that no part of the organization’s net earnings will benefit any private individual. Both must be in place before the IRS will approve the application.
Once approved, the IRS issues a determination letter confirming your exempt status.8Internal Revenue Service. Exempt Organizations Rulings and Determinations Letters Payment processors, grant-making foundations, and major donors will ask to see it. Keep it accessible.
Fiscal Sponsorship If You’re Not Ready to Incorporate
If incorporating and applying for your own exemption feels premature, an existing 501(c)(3) can act as your fiscal sponsor and receive tax-deductible donations on your project’s behalf. The sponsor keeps legal control over the funds and disburses them for approved purposes. Fiscal sponsorship lets you start fundraising immediately while the sponsor handles compliance. Expect to pay an administrative fee of 5% to 10% of donations received.
Registering to Fundraise in Each State
Federal tax-exempt status does not give you permission to ask for money in any particular state. Most states require a separate charitable solicitation registration before you begin fundraising within their borders. State attorneys general or secretaries of state oversee these registrations to prevent fraudulent fundraising.
Registration typically requires disclosing the names of your officers, the purpose of the fundraising, the methods you’ll use to reach donors, and financial details about the organization. You’ll renew annually and submit financial reports showing how much was raised and how it was spent. Registration fees vary by state, and some use a sliding scale based on total revenue. Failing to register before launching a campaign can bring administrative fines, cease-and-desist orders, or, in severe cases, criminal prosecution for deceptive solicitation.
Online fundraising complicates this. A “Donate” button on your website can trigger registration requirements in states where you’ve never set foot. State regulators generally follow guidelines known as the Charleston Principles, which call for registration when an organization specifically targets residents of a state through its website or receives contributions from that state on a repeated and ongoing basis. A handful of states take an aggressive position that even a single online donation from a resident creates a registration obligation. If you run any online campaign, assume you’ll need to evaluate registration in every state where donations arrive.
Issuing Donor Receipts
Receipts aren’t a courtesy. They control whether your donors can actually claim their deductions, and getting them wrong hurts the donors who gave you the most.
For any single contribution of $250 or more, your organization must provide a written acknowledgment that includes the organization’s legal name, the cash amount (or a description, but not a value, of non-cash gifts), and either a statement that nothing was provided in return or a description and good-faith estimate of anything the donor received.9Internal Revenue Service. Charitable Contributions: Written Acknowledgments If the only benefit was intangible and religious, say so. Without this acknowledgment, the donor cannot deduct the contribution, regardless of how much they gave.
Quid pro quo contributions have their own rule. When a donor pays for something that is partly a gift and partly a purchase (a $150 gala ticket where dinner is worth $60, for example), you must provide a written disclosure for any such payment over $75. Tell the donor that only the amount exceeding fair market value is deductible, and include a good-faith estimate of that value. Skipping the disclosure carries a penalty of $10 per contribution, up to $5,000 per fundraising event or mailing.10Internal Revenue Service. Charitable Contributions: Quid Pro Quo Contributions
Filing Annually to Keep Your Status
Tax-exempt status is not a one-time achievement. Every exempt organization (other than churches and certain church-related groups) must file an annual information return with the IRS.11Office of the Law Revision Counsel. 26 USC 6033 – Returns by Exempt Organizations Which form depends on size:
- Form 990-N (the e-Postcard) for organizations with gross receipts normally $50,000 or less. It’s a brief electronic notice covering your EIN, tax year, and principal officer.12Internal Revenue Service. Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard)
- Form 990-EZ for organizations with gross receipts under $200,000 and total assets under $500,000.13Internal Revenue Service. Form 990 Series: Which Forms Do Exempt Organizations File
- Form 990 when gross receipts reach $200,000 or more, or total assets reach $500,000 or more.13Internal Revenue Service. Form 990 Series: Which Forms Do Exempt Organizations File
The deadline is the 15th day of the 5th month after your fiscal year ends. Calendar-year organizations file by May 15.14Internal Revenue Service. Return Due Dates for Exempt Organizations: Annual Return
Filing late brings a penalty of $20 per day, capped at $10,000 or 5% of gross receipts, whichever is less. Organizations with gross receipts over $1,000,000 face $100 per day, capped at $50,000.15Office of the Law Revision Counsel. 26 USC 6652 – Failure to File Certain Information Returns, Registration Statements, Etc.
The bigger risk is missing filings for three consecutive years. Under Section 6033(j), the IRS automatically revokes your tax-exempt status on the due date of that third missed return.16Internal Revenue Service. Automatic Revocation of Exemption There is no warning letter and no grace period. Once revoked, the organization owes income taxes, donors lose their deduction, and you’re dropped from the IRS’s public list of eligible charities. Getting reinstated means filing a brand-new application and paying the full user fee again. Small organizations get blindsided most often here, especially those that file the e-Postcard and forget that even that minimal filing is mandatory every year.
Public Disclosure of Your Records
Once your organization is tax-exempt, you must make your exemption application (Form 1023 or 1023-EZ) and your last three years of annual returns available for public inspection, including all schedules and attachments.17Internal Revenue Service. Public Disclosure and Availability of Exempt Organizations Returns and Applications: Documents Subject to Public Disclosure Organizations other than private foundations do not need to disclose donor names and addresses.
Anyone can request these documents. A responsible person who refuses faces a penalty of $20 per day. Annual returns cap at $10,000 per return; the exemption application has no cap.18Internal Revenue Service. Public Disclosure and Availability of Exempt Organizations Returns and Applications: Penalties for Noncompliance Most organizations satisfy this by posting the documents on their website or through services like GuideStar.
The Financial Setup to Actually Accept Money
With the legal pieces in place, you need the plumbing.
Start with an Employer Identification Number. Every organization that accepts donations needs one, and you can apply online, by fax, or by mailing Form SS-4.19Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN) The EIN is a nine-digit number used for tax filing and reporting.20Internal Revenue Service. Form SS-4 – Application for Employer Identification Number Online applications produce an EIN immediately. Banks, payment processors, and grant-makers will all ask for it.
Open a bank account in the organization’s legal name, not your own. Bring your articles of incorporation, EIN confirmation, and a board resolution authorizing the account. The bank will collect identifying information about the individuals who control the account. Keeping donated funds separate from personal finances is what donors expect, what auditors require, and what protects you if anyone questions how the money was spent.
For online giving, payment processors will want your EIN, bank account details, and (for exempt organizations) your IRS determination letter before they turn on donation features. Verification typically takes a few business days. Once approved, you can embed donation forms on your website or share direct payment links. For checks that arrive by mail, deposit them promptly and log each one with the donor’s name, amount, date, and any restriction on how the funds should be used. That record makes year-end acknowledgment letters and the annual return far less painful when the deadline arrives.