When Lori Jung set up a crowdfunding campaign to help with her brother’s medical expenses for spinal cord damage, she also spoke to an accountant.
She needed advice on issues ranging from the tax implications of fundraising to managing tens of thousands of dollars in potential donations. Even after the consultation, which took place within days of her brother’s injury jumping off a pontoon boat, she was left with a list of questions.
Jung was wise to start her research early. Money matters often get shunted aside in deference to the emergency at hand when well-meaning people launch campaigns through online crowdfunding sites like GoFundMe.com or YouCaring.com.
Here are five ways to avoid big problems:
1. Pick the right beneficiary
“If I open up an account … and raise $30,000, and I give it to you, then I’ve given you a $30,000 gift,” said Morris Armstrong, an enrolled agent tax accountant and registered investment adviser in Cheshire, Conn. An individual who gives a gift of more than $14,000 has to file a gift tax form with the IRS.
Also key: do not to offer anything in return for donations, Armstrong said. Offering a T-shirt or hat to boost donations may be great marketing, but suddenly you are in the business of selling merchandise, because you are not a registered charity.
Jung’s family linked the online campaign directly to Brian’s bank account, so that the 36-year-old was the beneficiary. Any donations are considered gifts to him and will not trigger income taxes, although he will have to pay tax on the interest.
2. Set a financial target
Emergencies do not always come with a definite price tag.
Briana Garcia, 36, of Stoneham, Mass., did not know what her exact costs would be when she needed a stem-cell transplant in 2014. When her insurance denied coverage of the $125,000 procedure, she decided she needed to raise money online.
Garcia set her fundraising target at $40,000 once she negotiated to have the procedure covered. The rest went toward airfare, hotels and food for a month while she was getting ready for the operation. If Garcia needs more help down the road, she plans to launch an update and refresh her campaign.
3. Beware of fees and fine print
Most crowdfunding platforms charge a 5 to 10 percent site fee on top of a processing fee. For every $25 of the $40,000 she raised, Garcia said she got about $22, using GoFundMe.com.
YouCaring.com, however, does not take a cut of each donation, and instead relies on voluntary tips. It charges a processing fee of 2.9 percent, plus 30 cents per transaction.
Some sites will not release your funds unless you meet certain targets. Others may cut you off midway for some ill-defined violation of terms, said Michael Lai, CEO of the consumer advocacy site sitejabber.com.
One of the biggest complaints Lai sees is against platforms that never turn over the funds at all.
To combat this, Lai recommends only choosing a platform where funds are directly deposited. Pick from among the more well-rated platforms, which you can discern via research on sites like sitejabber.com.
4. Be transparent with your donors
Garcia posted updates to her campaign page telling people when she was flying and how things were going.
“You want them to feel like they are helping, and you are not scamming them,” she said.
YouCaring.com encourages people to post messages, photos and even videos. It helps to be specific about the purpose of the funds.
“It’s valuable to see a sense of purpose, that they are not raising money in a nebulous way,” said Dan Saper, CEO of YouCaring.com.
5. Safeguard your money
Lindsay McGrath, 36, a librarian from Boston, raised about $65,000 via YouCaring.com to pay for an experimental cancer treatment in London. She did the first round in August.
In the meantime, she wants to know what to do with the funds in the bank, which she is keeping in a separate account. All of her expenditures — such as airfare and child care — are mapped on a spreadsheet.
McGrath’s next step? Solicit some free financial advice through the network she has already established through her crowdfunding campaign.
Her plan is to sock away $25,000 in an investment that is safe, but liquid. She does not want to take any chances with her lifeline.
“I need to be extra-conservative with this money,” McGrath said.
Beth Pinsker writes for Reuters.