I didn't know it was illegal, officer!
January 9, 2006 7:42 PM   Subscribe

What are the tax implications of soliciting donations on your website or blog?

I'm trying something that could theoretically lead to not insignificant donations. (I'm hoping, at least!) My initial thought is, well, if it's a donation, that means it's a gift, so that should be tax-free, right? But I fear authority. I know you are not my L(awyer) or A(ccountant), but is this something to worry about? Is there a certain limit to what I don't have to worry about?
posted by ferociouskitty to Law & Government (14 answers total)
Response by poster: Oh yeah - pardon my U.S.-centric-ness. I am in the U.S., in Ohio, if that matters at all.
posted by ferociouskitty at 7:47 PM on January 9, 2006

Gifts (taxable) are not the same thing as charitable contributions. You do owe taxes on gifts received. You're supposed to report this income on your 1040. The IRS won't know about it unless they audit you, then it will be there in bank records (unless you're collecting cash donations somehow).
posted by rolypolyman at 7:52 PM on January 9, 2006

Actually, my assumptions may be wrong.. go check this out: http://www.thestreet.com/funds/investorforum/1230396.html. Obviously I have been talking out my ass.
posted by rolypolyman at 7:55 PM on January 9, 2006

Are the givers receiving anything at all for their money? If so, then it's not 100% a gift.
posted by smackfu at 7:56 PM on January 9, 2006

I would check out www.OddTodd.com. Todd, who lived in NYC, collected donations via a tip jar on his website. This got him into big trouble with the unemployment insurance folks, but I think he eventually won or settled somehow. The details should be there on the site. If no one else can point you to tax laws, you might be able to find some relevant info on his site....I'm sure he had to deal with more than just the unemployment folks.
posted by acoutu at 8:35 PM on January 9, 2006

I thought Odd Todd got laid off & he didn't have any money...
posted by growabrain at 11:54 PM on January 9, 2006

Income is still income. Gifts are income too. The simple approach is to add the amount of money that you receive this way to the amount of income you declare on your tax form. But I suspect that an accountant would have some more suggestions about how you could arrange it to not pay more tax than you have to.

When you have a question like this, paying for a one-hour consultation with an accountant will certainly pay for itself.
posted by winston at 6:12 AM on January 10, 2006

Gifts are income, but they are not generally not taxed income. "You make a gift when you give property, including money, or the use of or income from property, without expecting to receive something of equal value in return."
posted by smackfu at 6:27 AM on January 10, 2006

Are the givers receiving anything at all for their money? If so, then it's not 100% a gift.

So, legally, is reading a blog "receiving something" for your money? Surely, this has been settled by now.
posted by mediareport at 7:04 AM on January 10, 2006

Gifts are not taxable to the recipient. They are taxable to the giftor if the amount is over $12,000 to a particular individual (the dollar value varies, it's 12k this year) *and* if the giftor gives over a certain amount during the course of their lifetime that surpasses the yearly exclusion (and this amount varies too - in fact in a few years there is supposedly going to be a complete exemption of all gifts... but that probably won't actually happen since Congress is likely to say "who the hell put this provision in the code? Out!").

The question you need to be asking (if you care) is: how do I make the donations tax *deductable* to the donee? To do that, you have to set up an org that qualifies under 170 of the tax code (for federal taxes), and the applicable section in your state (for state taxes). 501c3s will generally satisfy 170.

Also, in order for the income, if any, from the donations (interest for example), not to be taxable to you, setting up a 501 org, generally a 501c3, is what you should do. This involves registering, and I'm not clear on the details.

Then there are a bunch of rules you have to follow to mantain your nontaxable org status.

I'd suggest calling up your state revenue service or the IRS. They can be surprisingly helpful.
posted by lorrer at 7:31 AM on January 10, 2006

It could be that 170 is all you need to qualify under for state taxes actually... oh, and IANAL, but I am studying tax in school. Definitely confirm every single thing I've said with your state and/or federal revenue service.
posted by lorrer at 7:32 AM on January 10, 2006

I think an argument can be made (following mediareport's line of thought) that if you provided something of value to the reader of your website/blog, then even though you don't require payment, if a reader choses to make a payment ("donation", "gift", etc.), you have to report that as income. (One argument would be that the reader has expectation that the payment will allow the website to continue operating, and thus provide future benefit to the reader; hence the payment is really part of an exchange).

I would imagine that websites that get reader contributions, and pay the owner of the website a salary(kottke.org and talkingpointsmemo.com come to mind), have to deal with this question.

The problem with talking to a tax accountant or attorney, or even calling the IRS, is that this is obviously relatively uncharted territory. I'm not sure one would get authoritative advice. For example, the situation with OddTodd involved only New York state and its definition of income (as in, eligibility to continue to collect unemployment compensation); the IRS may see things very differently.

Perhaps the closest thing to web donations in real life is panhandling on the street. According to various sites, such as this one, panhandling receipts should be reported as self-employment income
posted by WestCoaster at 10:07 AM on January 10, 2006

I followed the link in your profile to your blog.

I am not a lawyer or an accountant, but here are my thoughts:

For the most part, what you are asking for is sponsorship for activities with a tangible cost attached to them. Unless your personal trainer is less than $50 a session, if someone donates $50 toward your session and you use that money for a session, than you have made no profit. So, in terms of this money being reported as self-employed income, and losing weight/getting in shape is your business, then that $50 is part of the cost of doing business. So long as 100% of the donations are spent on weight-loss related activities (exercise shoes, therapy sessions, gym membership, etc.) I'm guessing that your tax liability will be limited. If you raise more money than you'll need to lose the weight/get healthy and it becomes straight forward income, then you'll end up owing uncle sam.

Assuming that you are trying to do this in order to afford your weightloss goals and not to actually make some income, when donations begin to go above and beyond what you will need, maybe it would be an interesting idea to look into starting a non profit org that provides weightloss grants to morbidly obese people? Just a random thought.
posted by necessitas at 11:32 AM on January 10, 2006

and losing weight/getting in shape is your business

Under no circumstances should you try to convince the IRS that losing weight/getting in shape is a "business" that qualifies for business expenses. Otherwise, EVERYONE would make self-improvement a "business".

In other words, necessitas is 100 percent in error.

[And, for what it's worth, I am an accountant, although not a tax accountant.]
posted by WestCoaster at 4:47 PM on January 12, 2006

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