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What consumers need to know about crowdfunding

Within days, crowdfunding websites reportedly raised more than $2 million to support victims of the Boston Marathon bombing tragedy. 

Boston_Marathon_bombing_first_bomb_site_54_minute_before_explosion-300x198While online giving provides a quick and easy way to support those in need, donors should ask questions and know what to expect when contributing through crowdfunding websites.

Crowdfunding websites are established to allow solicitation of money for a variety of purposes. The organizations or individuals to which the funds are given can be, but aren’t necessarily charitable, according to the Better Business Bureau. Some contributions through these sites may not be tax deductible as charitable donations.  

Donors should know that crowdfunding websites usually take a percentage of the donation ranging from 5 to 20 percent and may also deduct payment processing fees in addition. A few of these sites may allow the donor to cover all such fees but, in many cases, the recipient may not receive the full amount given.  

Crowdfunding websites can raise money for legitimate charities.  However, if you want to be sure that the charity receives the entire amount given, it’s a good idea to go to a charity’s website and make a direct online contribution, the BBB advises. 

Giving through established charities has advantages including the requirement that they register with state government authorities, must report on use of funds, and are subject to the oversight of a board of directors.

Only certain types of tax-exempt organizations are eligible to receive contributions deductible as charitable gifts, according to the Internal Revenue Service. 

Crowdfunding donations made to support a specific individual or family are considered a “personal gift” and not a charitable contribution. If charitable tax deductibility is important to you, be sure to donate to an eligible organization as defined by the IRS.

Additional tips from the BBB:

  • Make sure the crowdfunding websites you use to donate securely encrypt all transactions using Secure Socket Layer technology. Look for https at the beginning of the website address.
  • Read the crowdfunding site’s statement about its policies –  including its terms, conditions, and privacy policy – to understand how your donation and your personal information will be handled before giving.
Copyright 2013, Rita R. Robison, Consumer Specialist

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