View Full Version : Tax implications for donations on website??

nancy sv
01-02-2008, 03:51 AM
I've done a google search for this, but I can't seem to find what I need - hopefully someone here will either know the answer or will be able to point me in the right direction.

On our upcoming bike trip we will have our website up and running. We have two donation buttons - one for donations directly to Reach the World. We know we don't have to do anything for that one. But the other button is for donations directly to us via PayPal. Would we have to pay taxes on that? How would we report it?

Any help you can give me would be GREATLY appreciated!!

01-02-2008, 04:05 AM
Unless you are a non-profit org. I would think you will have to pay taxes on this. What you might do is set up a tax free org. and then follow what they say to do. It will require a tax number. Right now you are using just you or your husband, so it would fall onto one of yours personal income.

Check with an accountant or a tax person. They should be able to help you.


nancy sv
01-02-2008, 04:18 AM
Any idea on how much we could get before we had to pay taxes? I really don't think we'll get a lot. We basically put it on our website because a friend wants to give us $100 per month. We doubt we will get much beyond that, but who knows???

Tish Davidson
01-02-2008, 04:19 AM
and you would probably report it on the miscellaneous other income line on your 1040

nancy sv
01-02-2008, 04:23 AM
Just write it in, or do we need some sort of documentation?

01-02-2008, 04:32 AM
Just write it in, or do we need some sort of documentation?

Is the gift made to a corporation or business entity? If so, you'll have to file a Schedule C and record it as income.

If it's a gift that's made to you personally, then it is not taxable until it reaches the annual exclusion amount--which is now $12,000 (http://www.fairmark.com/begin/gifts.htm).

So if your friend is giving you and your husband, personally, a total $1,200 over the course of a year, that's a non-taxable gift. You don't have to report it anywhere.

nancy sv
01-02-2008, 04:47 AM
Thanks! I thought it was something like that. Before my mom died and we were thinking she might have to go into a nursing home, we wanted to get all the money out of her checking account. She ended up "donating" $10,000 to each of us five kids - that way the money wasn't "hers" any more, and we didn't have to pay tax on the "donation". I didn't know if that was only a family thing, or from anybody.

01-02-2008, 08:02 AM
It's 1099 income; declare it all, and then you can, depending on the numbers, likely deduct soem of the Web site expenses.

01-02-2008, 07:23 PM
You need to talk to an accountant who works with small businesses, maybe even one who has expertise with internet businesses. It's a complicated question, whether it's income or a gift, and I don't know the answer, and I'm not sure anyone except a CPA would know the answer with any reliable certainty. Which is why you're getting two different types of answers here. And the wrong answer could cost you substantially in taxes and penalties.

If the money is a gift, then it's non-taxable, although if it exceeds $10K (or the amount may have increased to $12K), the person making the gift is required to file a gift tax return (even if no tax is due).

OTOH, if the money is not a gift, but is some sort of income, then it's taxable from dollar one.

The trick is in figuring out whether the IRS would consider it income or a gift. And that's where an accountant is necessary. Oh, and ask the same question about the state taxing authority.

JD, not giving a legal opinion, just recommending you seek professional assistance

01-02-2008, 07:41 PM
And the wrong answer could cost you substantially in taxes and penalties.

The tax/penalty on $1,200, if it were declared to be income rather than gift, wouldn't be "substantial"--by my back-of-the-envelope figuring, it wouldn't amount to more than the amount of the tax due (35% for the top tax bracket) plus, at the most, a nominal penalty for misfiling (which I think is 1.5% of the tax due).

So it might seem easier for Nancy to just go ahead with declaring it a gift and be ready to take the consequences, tax-wise, if it's reclassified--the difference between the potential tax hit and the costs of seeing an accountant aren't that great.

HOWEVER, since Nancy probably would like to have more donations to support the charity bike trip, I think that you're absolutely right that she needs to see an accountant and get this issue settled as they move forward.

Because this isn't (if all goes as Nancy plans) just one one-time gift from one person. Which is an important point I should have thought of before!

So, Nancy, I'm switching my vote to side with Jan--see an accountant. It's worth it as an investment in your trip. If you can get these details totally worked out in advance, it'll be one less thing on your mind.

nancy sv
01-02-2008, 08:53 PM
Good point. I just wasn't feeling that many people would donate, but I suppose it is a possibility. I'll ask and see what we need to do. We just went through a horrible IRS audit and I DON'T want to go through that again!!