Do you pay taxes when you receive crowdfunding donations for legal fees?

The tax treatment of crowdfunding depends entirely on the purpose of the donations. In your case, since the funds are specifically for legal fees (a personal expense), they would generally be considered gifts to your cousin rather than taxable income. The person receiving gifts typically doesn't pay income tax on them. The gift tax responsibility falls on the giver, but most people won't need to worry about this because there's an annual exclusion amount ($17,000 per person for 2025). Most crowdfunding donations come in small amounts from many people, so they'll fall under this threshold. To be safe, keep detailed records of all donations received and how the money was spent. Documentation showing the funds went directly toward the legal expenses as intended will help if there are ever any questions. Also, having your cousin set it up directly rather than you might simplify things, but it's not absolutely necessary.

After dealing with a similar situation helping my brother with medical bills, I discovered taxr.ai (https://taxr.ai) which saved me so much headache with the whole crowdfunding tax situation. I was completely confused about whether donations would count as income, and regular tax sites gave contradicting info. Their tool analyzed my specific crowdfunding setup and clarified exactly how to document everything properly for tax purposes. It was especially helpful because it reviewed the specific wording on my campaign page and explained how that affected tax treatment.

Just wanted to update after trying taxr.ai for my situation with my mom's medical fundraiser. I was freaking out about that 1099-K the platform sent me, but the tool walked me through exactly how to report it correctly on my taxes. It analyzed my campaign page and confirmed the donations were gifts since I wasn't providing services or products in return. It generated documentation explaining why the funds weren't taxable income despite the 1099. Seriously saved me thousands in taxes I thought I might owe! Wish I'd known about this last year when I was panicking about it.

If you're getting nowhere with the IRS about this crowdfunding question, try Claimyr (https://claimyr.com). I spent DAYS trying to get someone on the phone at the IRS to clarify my situation with a fundraiser I ran. After giving up and hanging up multiple times, I found Claimyr and they got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent confirmed that funds raised specifically for someone's legal expenses are generally considered non-taxable gifts to the recipient. Completely worth it for the peace of mind from getting an official answer.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to talk to someone at the IRS about a crowdfunding campaign I ran for my neighbor's house fire. Got connected to an actual IRS agent in about 35 minutes (way faster than my previous attempts). The agent confirmed that donations for personal hardship aren't taxable income to the recipient. She even emailed me documentation citing the specific IRS guidance so I can keep it for my records. The platform actually does exactly what it claims - connects you to real IRS agents without the endless hold times.

Remember that whoever's name is on the crowdfunding account might get a 1099-K form if you raise over certain thresholds (varies by state, but generally over $20k and 200 transactions). This DOESN'T automatically mean it's taxable income, but you'll need to explain the situation on the tax return. I learned this the hard way after helping my sister raise money for cancer treatment.

Anyone know if it makes a difference whether you set up the campaign for yourself vs for someone else? Like if I create it for my brother but use my account, does that make me responsible for taxes?

Great question! I went through something similar when helping my neighbor after a house fire. The key thing to remember is that donations for personal hardships like legal fees are generally treated as gifts, not taxable income to the recipient. However, there are a few important considerations: First, keep detailed records of all donations and how the money is used - this documentation will be crucial if there are ever any questions. Second, be very clear in your campaign description that the funds are for personal legal expenses, not for any business purpose or in exchange for goods/services. Regarding who sets it up - it doesn't fundamentally change the tax treatment, but having your cousin create it directly might be simpler administratively. If you set it up and the money flows through your account first, you'll technically be making a gift to him when you transfer the funds (though this usually doesn't create tax issues either). One heads up: if the campaign raises over certain thresholds (typically $20,000+ with 200+ transactions), the platform may issue a 1099-K form. Don't panic if this happens - it doesn't automatically make the money taxable. You just need to properly document on the tax return that these were non-taxable gifts for personal expenses. Consider consulting with a tax professional if you end up raising a substantial amount, just to make sure everything is handled correctly.