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Money donations to individual - what are the tax laws?

 
 
chiefthracian
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      04-26-2004, 03:09 AM
Hello, I am an activist who has begun accepting donations in
money, to be used to further my freelance political
activism. I am doing this on my own...not as a business
(non-profit or other). All monies will be used ONLY for my
activism...and I'll keep a record of all donations, and all
expenses; using a separate (non-interest bearing, no-fee)
bank account just for this purpose.

What are my obligations re. paying taxes on these donations?
I guess that I'd have to treat them as "gifts"...since I am
NOT working for a non-profit (in which case I believe
there'd be no tax on monies that do not generate a profit).

I expect also to accept no-money donations, too...such as
computer parts and art material. I presume I'd have to make
a reasonable estimate on the present monetary value of those
items. Used items would be worth less than new items, of
course.

Assuming I will keep tight reigns on my account (no mingling
whatsoever), and keep everything up front...what are my tax
obligations? I am totally new to this aspect of
taxation...so perhaps anyone can direct to a useful (free)
resource on the web, which would explain this stuff in a
clear manner?

TIA!

--
Zeke Krahlin, Chief Thracian
Lavender-Velvet Revolution
http://www.gay-bible.org

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Vic Dura
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      04-27-2004, 05:13 PM
chiefthracian <(E-Mail Removed)> wrote:

> Assuming I will keep tight reigns on my account (no mingling
> whatsoever), and keep everything up front...what are my tax
> obligations? I am totally new to this aspect of
> taxation...so perhaps anyone can direct to a useful (free)
> resource on the web, which would explain this stuff in a
> clear manner?


I'm not a tax pro, but I would suggest that you use a Sch-C
for your tax return. Count all cash, and the Fair Market
Value of non-cash, received as gross income in Sch-C. Enter
you expenses on Sch-C in the appropriate lines.

--
To reply to me directly, remove the XXX characters from my
email address.

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Hamlet the Prince
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      04-27-2004, 05:33 PM
> I am an activist who has begun accepting donations in
> money, to be used to further my freelance political
> activism. I am doing this on my own...not as a business
>
> I guess that I'd have to treat them as "gifts"...


You are receiving money to perform the service of political
activism. Because the donor is expecting something in return
(activism) for the "donation", the money you receive is not
considered a gift for tax purposes.

Therefore, the full amount of money and the fair market
value of the property that you receive will be fully taxable
to you. Even though you state this is not a business, tax
law would treat it as a business. You could deduct any out
of pocket costs and you will also owe self-employment taxes
on your net earnings.

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MTW
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      04-30-2004, 07:49 AM
chiefthracian <(E-Mail Removed)> wrote:

> Assuming I will keep tight reigns on my account (no mingling
> whatsoever), and keep everything up front...what are my tax
> obligations? I am totally new to this aspect of
> taxation...so perhaps anyone can direct to a useful (free)
> resource on the web, which would explain this stuff in a
> clear manner?


Unless you go to the trouble of setting up (or affiliating
with) a tax exempt organization, I can't think of a single
reason why the amounts in question wouldn't represent
taxable income to you.

I doubt they qualify as "gifts" for tax purposes because I
presume that you are actively soliciting the contributions
and that the donors expect you to do something in return
(further a "cause," etc.).

MTW

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Katie Jaques
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      05-05-2004, 07:16 PM
"MTW" <(E-Mail Removed)> wrote:
> chiefthracian <(E-Mail Removed)> wrote:


>> Assuming I will keep tight reigns on my account (no mingling
>> whatsoever), and keep everything up front...what are my tax
>> obligations? I am totally new to this aspect of
>> taxation...so perhaps anyone can direct to a useful (free)
>> resource on the web, which would explain this stuff in a
>> clear manner?


> Unless you go to the trouble of setting up (or affiliating
> with) a tax exempt organization, I can't think of a single
> reason why the amounts in question wouldn't represent
> taxable income to you.
>
> I doubt they qualify as "gifts" for tax purposes because I
> presume that you are actively soliciting the contributions
> and that the donors expect you to do something in return
> (further a "cause," etc.).


Mike, would you agree that this is not an activity engaged
in for profit, and therefore not a Schedule C business?

I think the gross income is reportable as "other income,"
and any related expenses are miscellaneous itemized
deductions subject to the (2.5% of AGI? I'm too lazy to look
it up <G>) limitation.

But I could be wrong ...

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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MTW
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      05-08-2004, 11:55 AM
Katie Jaques <(E-Mail Removed)> wrote:

> Mike, would you agree that this is not an activity engaged
> in for profit, and therefore not a Schedule C business?


Hmmm... ~Very interesting!~ But, ultimately I think this
"fails."

If the poster has the unfettered ability to withdraw the
funds and convert them to his own personal use, I'd guess
that the IRS would hold this to be a "for profit" business
activity that is subject to both income and SE tax. In order
to avoid that result, I believe there would need to be a
VERY secure "Chinese wall" in place, such as a FORMAL trust
with independent trustees who approve activities,
expenditures, etc.

PERHAPS a simple agency agreement would suffice, whereunder
the poster is required to "account" to the contributor for
all expenditures and return any unspent funds. But, I'm not
so sure about that...

MTW

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chiefthracian
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      05-12-2004, 03:41 AM
Thank you EVERYONE here, for your thoughtful answers. I had
given up on this newsgroup, because no one answered as soon
as those in "us.taxes". Only today did I check up on latest
responses to my plea. If you want to read the us.taxes
thread first, go to:

And if that thread is way too long to handle properly, you
can locate it yourself at Google groups, with the following
stats:

From: chiefthracian ((E-Mail Removed))
Subject: Money donations to individual - what are the tax laws?
Newsgroups: us.taxes
Date: 2004-04-24

Or you can go to my 2004 "Zeke Meets Usenet" page, at:

http://www.gay-bible.org/usenet/2004.htm

and scroll down to (or search for) the phrase "Money
donations to individual"; then click on that link.

I am pretty much set up now, to go the "gift"
direction...and easily make the switch to "self-employed"
if/when donations empower me to shed my disability cloak.
Your idea of having legal witnesses re. how I spend these
donations, is excellent. However, I have no such contacts,
nor the resources to acquire them for this purpose.

However, there is much I can do to prove all expenses went
directly to my gay activism. I'll be keeping a ledger of
expenses and donations, updated immediately upon any
transaction. And this ledger shall be available on my
website, free for anyone to peruse. Included in this, will
be scanned receipts of my expenditures. My website alone is
solid witness to my hobby of persuing gay rights...and if
taken to court or IRS over this, there certainly ARE folks
who've known me quite a few years...and as far back as they
can remember, I've ALWAYS been first and foremost, a gay
rights activist.

All monies received as donations, I'll spend EXCLUSIVELY for
queer activism as I see fit. All items or services donated
in lieu of money, shall be used EXCLUSIVELY for gayr
activism as I see fit. I shall keep a LOG (in addition to a
ledger) of why I used certain tools, and the event in which
they were just utilized.

Actually, what monies I see coming in, are rather paltry for
most people's needs...and thus may never gain the interest
of the IRS. But as little as $25-75/mo. will EMPOWER me
greatly in many ways. And what expenses I incur, will only
result in increasing my resources...which may not be in
currency, but in items or services of measurable value (and
which I could exchange for currency).

And, within 2-5 yrs., my hobby could wind up growing large
enough in resources, that I could switch to self-employed
status. But if it doesn't, my books are square anyway...with
clear, complete records of ALL donations and expenses.

Thanks again! -Zeke Krahlin
http://www.gay-bible.org

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Sassy Baskets
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      05-14-2004, 12:51 AM
> I am pretty much set up now, to go the "gift"
> direction...and easily make the switch to "self-employed"
> if/when donations empower me to shed my disability cloak.


This makes NO SENSE. IF the donations are gifts now, they
will ALWAYS be gifts. If they aren't gifts, then you have a
hobby which may someday qualify as self-employment if you
intend to turn a profit. Gifts do not suddenly become
compensation.

According to the www.irs.gov, "You make a gift when you give
property (including money), or the use or income from
property, without expecting to receive something of equal
value in return."

Hamlet the Prince says:
> You are receiving money to perform the service of political
> activism. Because the donor is expecting something in return
> (activism) for the "donation", the money you receive is not
> considered a gift for tax purposes.


I disagree at least with your reasoning, even if these are not gifts.
The donor does not expect to receive something of equal value in
return for the donation. First, what is the value of the recipient's
activity? What exactly does a particular donor *receive* *in return*
for a donation? Which specific actions are services to which donor?
Is the activist accountable to each donor for what exactly their money
got them?

The activist's "services" may provide no specific benefit to
any individual, may have no impact at all, and aren't
performed *for* any particular donor, so what exactly is the
donor getting? And how can it be said to be "in return" for
their money?

Look at how this criterion "without expecting to receive
something of equal value in return" applies to charitable
donations: If your $3 donation to the Girl Scouts gets you
a box of cookies worth $3, it's not a gift, it's simply a
purchase. But if you give $3 to Planned Parenthood knowing
that they're going to use that money to carry out activities
of which you approve, even if you think these activities may
benefit you in some way, it's a gift. You're paying for
something, yes, but you aren't personally receiving anything
*in return* and *of equal value*. The fact that the
activist isn't a qualified charitable organization just
means the gift isn't tax deductible; it does not mean that
it isn't a gift.

If I give my neighbor kid a piano knowing I'll enjoy hearing
him play it, does that make it not a gift?

If you all think these can't be gifts, there must be some
other reason or a regulation that specifically excludes
them; can someone provide me a reference?

MTW writes:

> If the poster has the unfettered ability to withdraw the
> funds and convert them to his own personal use, I'd guess
> that the IRS would hold this to be a "for profit" business
> activity that is subject to both income and SE tax.


It doesn't matter if you have unrestricted access to the
funds if you don't come out ahead at the end of the year.
If you don't turn a profit, there's no way the IRS would
call this a for-profit business. If you had losses from the
activity, they would be disallowed. If you have no profit
motive and no profit, you better not file a Schedule C.

If there's something that prevents these from being gifts,
you have hobby income. You say on us.taxes that your
donations will never exceed your expenses—if those expenses
include only those required for the activity that draws the
money and no personal living expenses, then you will not
have a profit (to avoid having a profit, your expenditures
during the tax year must meet or exceed the donations you
received during that year). This means you will not be
self-employed, and you MAY NOT file Schedule C. You would
report the hobby income as Other Income on your 1040 and
deduct the expenses on Schedule A, subject to a trim equal
to 2% of your adjusted gross income. Unless you have other
expenses in this part of Schedule A, this means that the
donations you receive would only increase your income by
about 2% of the donations. That means that $1000 in
donations adds about $20 to your income; if you're in the
15% tax bracket the tax you'd end up paying on $1000 in
donations is only $3. If you do have other expenses in this
part of Schedule A, the additional $1000 reported may have
virtually no impact on your taxes (there may be some impact
from the increase in your AGI, which is used in some other
calculations, but I doubt you'd even notice).

If you claim the standard deduction instead of itemizing,
your donations will impact your taxes, to the effect of
being fully taxable.

If you filed a Schedule C, which you may not, the donations
would impact your taxes even less, because there would be no
2% trim, all your expenses would be deductible against the
donations, and you'd have 0 income to enter on your 1040,
which means your AGI wouldn't even be affected. If you
started making a profit—meaning, each year your donations
exceeded your expenses, then you could file a Schedule C and
pay tax on the excess.

The activist repeatedly asks on us.taxes:
> I'd just pay the taxes by considering these donations
> as "gifts". Does that sound right?


No. You do not pay any taxes on gifts you receive. That is
why people are telling you that you may not treat these as
gifts because IF they don't qualify as gifts, you have to
report them as income so the IRS can get their share.

You also repeatedly mention (on us.taxes) that a business is
required to turn a profit after three years. There is no
such requirement. Turning a profit in 3 out of 5 years (or
is it 2 out of 5? I can't remember) means that the IRS will
assume that the activity is for-profit, and you don't have
to do anything else to prove it. It's possible to never
turn a profit and still be considered a for-profit business.
The main requirement for being a business, according to the
IRS, is profit motive, which you don't have.

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Katie Jaques
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      05-14-2004, 06:48 AM
"MTW" <(E-Mail Removed)> wrote:
> Katie Jaques <(E-Mail Removed)> wrote:


>> Mike, would you agree that this is not an activity engaged
>> in for profit, and therefore not a Schedule C business?


> Hmmm... ~Very interesting!~ But, ultimately I think this
> "fails."
>
> If the poster has the unfettered ability to withdraw the
> funds and convert them to his own personal use, I'd guess
> that the IRS would hold this to be a "for profit" business
> activity that is subject to both income and SE tax. In order
> to avoid that result, I believe there would need to be a
> VERY secure "Chinese wall" in place, such as a FORMAL trust
> with independent trustees who approve activities,
> expenditures, etc.
>
> PERHAPS a simple agency agreement would suffice, whereunder
> the poster is required to "account" to the contributor for
> all expenditures and return any unspent funds. But, I'm not
> so sure about that...


So you think if his expenditures exceed the support he gets,
he can deduct the loss on Schedule C??

Katie

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Rich Carreiro
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      05-14-2004, 07:07 AM
(E-Mail Removed) (Sassy Baskets) writes:

> report the hobby income as Other Income on your 1040 and
> deduct the expenses on Schedule A, subject to a trim equal
> to 2% of your adjusted gross income. Unless you have other
> expenses in this part of Schedule A, this means that the
> donations you receive would only increase your income by
> about 2% of the donations. That means that $1000 in
> donations adds about $20 to your income;


How do you figure that? Lets say he has $1000 in
"donations" and $1000 in expenses. The $1000 of income
goes on "Other Income" of 1040 and the expenses are
misc expenses subject to the 2% of AGI reduction.
Unless these "donations" are virtually the only
income he has, the 2% rule will eliminate virtually
all of the "raw" $1000 of expenses -- so the $1000
in "donations" will increase his taxable income by
almost $1000.

Now, if he DOES already have a bunch of misc
itemized deductions, then he'll have the result
you describe.

--
Rich Carreiro (E-Mail Removed)

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