Crowdfunding is generally used to fund a charitable cause or commercial endeavor by raising small amounts of money from a large number of people over the Internet or social media. Thousands of crowdfunding platforms are used to raise tens of billions of dollars annually.
Well-known platforms include GoFundMe, Indiegogo and Kickstarter.
Crowdfunding can be particularly useful in gathering donations in a hurry in response to a natural disaster or human tragedy. In the commercial arena, it’s been used to fund books, music, games, gadgets, and other types of products and services.
Here are a few things to know:
- The campaign organizer establishes the goal of the campaign and receives the money. If it’s a charitable cause, the money doesn’t go directly to the person or people it’s intended to help.
- Each crowdfunding platform has its own set of rules on how campaigns are established, how and when money will be disbursed to the organizer, and how much the platform collects in fees. They also vary in the degree to which they vet appeals.
- Only donations to a crowdfunding appeal established by a registered charity are tax deductible.
Unfortunately, scammers have used crowdfunding appeals to steal money from donors and investors.
Perhaps the most notorious charitable scam involved a heartwarming story out of Philadelphia in which a homeless veteran gave his last $20 to a woman who ran out of gas. The woman and her boyfriend set up a GoFundMe campaign to help the man get off the…