Tax implications for creating a memorial scholarship on GoFundMe - what do I need to know?

This is a great question that many people overlook when setting up memorial scholarships. The way you're describing it could potentially cause tax issues for you. When you receive money into your personal account - even if it's intended for scholarships - the IRS might consider this as taxable income to you. This is because you don't have a formal tax-exempt organization established. There are a few options to consider: 1) Create a formal 501(c)(3) nonprofit organization (more paperwork but cleaner tax-wise) 2) Partner with an existing community foundation or educational institution to administer the scholarship 3) Use a fiscal sponsor who already has nonprofit status If you're determined to keep it simple, you might want to consider declaring the GoFundMe proceeds as non-taxable gifts to you, but then the scholarship awards might be considered gifts from you personally, which could trigger gift tax issues if they exceed annual limits. The recipients generally won't owe taxes if the scholarships are used for qualified educational expenses like tuition and required fees, but if used for room and board or other expenses, it could be taxable to them.

After struggling with the same issue for my brother's memorial scholarship, I finally found https://taxr.ai which was a lifesaver. I uploaded all my GoFundMe documents and scholarship plans, and they provided a detailed analysis of the tax implications specific to my situation. The tool flagged several issues I hadn't considered - like the fact that when I transferred the money to my personal account, it could be considered income without proper documentation. They also explained how to structure the scholarship to ensure recipients wouldn't face tax consequences. The guidance was really clear about what forms I needed and how to document everything properly for the IRS. Their analysis also recommended specific language to use in my GoFundMe description to clarify the tax situation for donors. Definitely worth checking out if you're planning to do this yourself rather than through an established nonprofit.

Just wanted to report back that I checked out that taxr.ai site mentioned above and it was incredibly helpful for my situation. I was setting up a scholarship for my dad who passed away, and I had no idea about all the tax implications. The analysis they provided showed me that I was about to make a huge mistake by running everything through my personal bank account. They explained exactly how to document everything properly to avoid having the funds treated as personal income, and even provided templates for the necessary paperwork. I ended up partnering with our local community foundation based on their recommendation, which simplified things tremendously. They even explained the difference between qualified and non-qualified scholarship expenses in terms that actually made sense to me. Definitely worth using if you're setting up something like this.

Have you tried calling the IRS directly? I kept getting conflicting advice online about a memorial fund I set up, so I finally tried to reach the IRS for an official answer. After trying for DAYS and never getting through, I discovered https://claimyr.com and used their service (there's a demo at https://youtu.be/_kiP6q8DX5c). They got me connected to an actual IRS agent in about 20 minutes when I had been trying for over a week on my own. The agent was able to clarify exactly how to handle the memorial scholarship funds for tax purposes and confirmed I needed to file certain forms to avoid having the money counted as personal income. They also explained how to document everything properly so there wouldn't be issues if I ever got audited. Saved me hours of frustration and potentially a huge tax bill. Definitely recommend if you need official answers from the IRS about your specific situation.

I need to apologize for my skepticism about Claimyr above. After more frustration trying to reach the IRS myself about a complicated memorial fund situation, I decided to try the service. It actually worked exactly as described. They called the IRS, navigated through all the menu options, waited on hold (for over an hour!), and then when an agent finally answered, I got a call connecting me directly. The IRS agent I spoke with gave me specific guidance about handling scholarship funds through a personal bank account versus other options. The agent explained that I needed to maintain extremely detailed records and possibly file Form 1099-MISC for each scholarship recipient if I went the personal route. She strongly recommended working with an established educational institution instead to avoid potential tax complications. Definitely changed my perspective on the value of this type of service when dealing with the IRS.

Have you considered just using a donor-advised fund instead? That's what we did for my mom's memorial scholarship. Companies like Fidelity, Schwab and Vanguard all offer them with much lower minimum requirements than setting up your own 501(c)(3). The tax advantage is that donors can take the tax deduction immediately when they contribute to your fund, and then you can distribute the scholarships over time. The money grows tax-free until you award it, and all the tax documentation is handled by the financial institution. We found it way simpler than trying to run everything through a personal account, and it looks more legitimate to potential donors too. The fees were reasonable - around 0.6% annually.

One thing nobody's mentioned yet - if you give scholarships to individuals you select yourself, even through your own 501(c)(3), you need to be careful about "private benefit" rules with the IRS. You generally need to have an independent selection committee and clear objective criteria for choosing recipients. If you choose recipients who are related to you or who benefit you indirectly, it could disqualify the tax-exempt status. This happened to my cousin who set up a scholarship fund and didn't realize she couldn't award scholarships to her friends' kids. I highly recommend getting specific guidance on the selection process, not just the financial structure. The IRS is particularly picky about this part.

This thread has been incredibly helpful - I'm in a similar situation trying to set up a memorial scholarship for my late father. One additional consideration I haven't seen mentioned is the state tax implications, which can vary significantly from federal rules. In my state (California), I discovered that even if you structure everything properly at the federal level, there may be additional state reporting requirements or different treatment of the funds. Some states have their own gift tax rules or require separate filings for charitable activities. I'd strongly recommend checking with your state's tax agency or a local tax professional who understands your state's specific rules before finalizing your approach. What works perfectly for federal taxes might create unexpected complications at the state level. Also, if you're working with a community foundation or setting up a donor-advised fund, make sure they're familiar with your state's requirements too. I almost got caught off guard by this until my CPA flagged it during our planning session.