Receiving donations

"Stan Brown" wrote

My take is that it's income to you, much like the change tossed into the guitar case is income to the street musician, and the waitresses tips are income. They're paying you, or "donating" to you, because you did something. They liked that something and decided that something you did has value.

I am with Paul on this one.

What you're doing is allowing the customer to set the price for the item you've provided to them. I don't see this as any different that the negotiation that happens when you buy a car - though it is being done on a different scale. And I don't think it would matter a lick if you had a separate web site for the "donations", they would still be income to you for something you've produced and made available.

Gene E. Utterback, EA, RFC, ABA

Thanks, Gene and Paul, for the reply.

There's something I don't understand, though. The IRS definition of a gift is at

8139,00.html and is "Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return."

How are these donations *not* gifts, by that definition? The information received has a market value of zero, since it is freely available to people who don't make donations, which of course is the great majority.

In addition to that, a gift must be given as the result of disinterested generosity. When people donate to you, it is in appreciation for something you do as work - similar to leaving a waitress a tip in a restaurant. While they are not mandatory payments, they are related to and given in appreciation of the person's work and are, as a result, not considered gifts.

Thanks for the reply. So to make sure that I understand, let me make an analogy.

Fred is in a museum and sees the work of a living artist. Moved by his appreciation of her work, he sends her a donation. This is then taxable income to her, right? Or if I've misunderstood and it's a non-taxable gift, how is it distinguished from my situation?

Right, it's taxable (at least in the US). Unless, that is, he sets up a qualified nonprofit and the gift is made out to it.

I think part of the confusion comes from the fact that the button (little image to click) on websites often has the word "donate" as if the legal definition of a donation with all its implications will apply. In nearly all cases (except for the qualified charity) the donation is not a deduction for the giver, and it taxable to the recipient.

Full consideration is what a willing buyer will give a willing seller OR IN YOUR CASE what a willing seller will accept from a willing buyer. Back to my car analogy - its a fair bet that no two people pay the same price for the same car, even if bought on the same day from the same dealer and the same salesman. That is the gist of negotiation.

Gene E. Utterback, EA, RFC, ABA

OK Stan - you've asked and been answered multiple times. I'm betting you get this and now simply "opinion shopping". Think about your last description - did Fred take the painting home with him? Is it now HIS?

Tell you what - if you don't like the advice we're giving you why don't you just NOT claim the income. You'll probably be just fine. Sort of like driving 50MPH in a 30MPH zone - life will be good, until you get caught.

Gene E. Utterback, EA, RFC, ABA

I would say that's a gift. The difference is that the artist did not put the work in the museum with any intent to get money from the public as a result.

Seth

Then they should have no accepted the check. As long as they did accept the check, it's taxable income, and self-employment at that.

I think that remark is uncalled for. I'm trying to understand the distinction. I have no reason to suppose myself stupider than other people, but the distinction (if there is one) is simply not clear to me.

Your "asked and answered multiple times" is perhaps misplaced, since you did not actually answer the question about Fred.

Of course not. Do you mean to imply therefore that Fred's payment to the artist *is* a gift, because Fred does not acquire any ownership interest? In that case, I still don't understand how that is different from the situation of someone donating to a Web site because they like the content: they obviously acquire no ownership interest there either.

How does the recipient know it had anything to do w/ the museum or any painting? He/she just got an unexpected gift check in the mail.

OTOH, the web site has a specific request posted asking...

Stan let me guess, you an engineer/math guy? When reading this thread, my inclination is to ask for the example where the distinction is black/white. A friend breaks his leg, I give him money. It's a gift, right? But if I set up a web site and strangers give him money, it's taxable? I believe this to be the case. The only reason I'd not care is that no one is giving me money. But I understand there's this gray area you'd like clarified. Maybe my example is correct and helpful. To me, it seems you can't gift strangers so easily. You like my web site, find invaluable advice and cut a check. I tell you to send it directly to a charity. I get no paperwork issue, you get a deduction, charity gets their donation.

Stan's question made sense to me and seemed to be looking for an actual line to draw, rather than trying to split hairs so thin that nobody knows what to do, as some here like to do.

Mostly. But there are some cases where it might actually be considered a gift. If, for example, the website asks for money because the person has medical problem or his house burned down, I doubt that would be considered taxable income.

Stan asked a question similar to one that came up years ago, and the courts decided against the taxpayer - tips for restaurant wait staff. It sure looks like a gift, because it's not required or even asked for. But it is related to work being done for compensation, so it was decided tips are more like income than gifts. It makes sense, but easily could have gone the other way.

If you receive a check in the mail from someone you don't know, and you have no idea why it came to you, I'd be suspicious that someone may be trying to get your banking information.

Be as that may be, that it's unexpected or from an unknown benefactor makes it taxable is the question at hand?

Clearly there is insufficient information to make that call. If you receive an anonymous check from someone, without any indication of why you received it, I wouldn't jump to the conclusion that it's a gift. Again, a gift has to be given from disinterested generosity. If you have no idea where it comes from or why, it may or may not be a gift.

That's the point, I guess--from where is that individual to learn this otherwise? If Fred writes Starvin Artiste a little note and encloses it with the check that he really was somehow moved by the art, that's fairly clear at least where it came from. It still seems far enough removed from direct recompense that to me it walks like the gift duck (as opposed to the income duck that started the thread of a web link prompting for "support if like" or the direct face-to-face of the waiter's tip, etc.). The latter I can see clearly; the unsolicited and essentially anonymous not so much...