Receiving donations

Normally the rule would be that it is taxable income unless he establishes that it's not.

But is that so different from my saying that I was so moved by the service given by a particular waitress, that I am giving her a tip that I would not have otherwise given?

One difference in the example you gave is that contributions to the arts can be seen as given to a nonprofit, since we recently established that a nonprofit does not need to get IRS approval if it normally takes in less than $5,000 per year.

But aside from that, it seems to me that if it's not a gift to a close friend or relative, or in response to some disaster, it's not likely to fly.

Reply to
Stuart A. Bronstein
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On 4/12/2011 1:53 PM, Stuart A. Bronstein wrote: ...

To me, yes; the totally remote nature of the interaction is quite different than the tip irregardless of how generous or the motivation.

So receiving a "random act of kindness" is taxable.

That just seems wrong (whether legally so or not).

Brings to mind the skit Jay had on last night posing "Is it deductible?" query to a CPA which brought the quip after asserting the expenses of an OK brothel keeper are deductible is reporting earnings and several others along similar vein -- "OK, the IRS has no morals!" (And, that's posted only in the sense of "it's a joke!"; no inference should be drawn regarding opinion or that am making some statement...)

I guess if I were in the shoes of Starvin Artiste I'd consider Fred's check decide at the time I filed. Sometimes "don't ask, don't tell" _is_ the best policy. :)

Reply to
dpb

Not necessarily - it depends, as they say, on all the facts and circumstances on a case by case basis. But unless the recipient can show it's not taxable, it will be.

If I were that starving artist, I'd probably consider it a tax free contribution to my art funding organization.

Reply to
Stuart A. Bronstein

OK, one final amplification of how/why/what seems different to me (not that I've ever had or ever expect to need the definitive result)... :)

In the one instance (the waiter/waitress) the recipient is actively performing their occupation and expects a portion of their remuneration in the form of tips and by providing that particular level of service is well aware that that can lead to better reward. One can fairly easily presume that if, over a period of time, this person observed that better service did _not_ lead to better tips that the extreme level of service provided would, in fact, more nearly approach that typical of the establishment (regression to the mean).

In the situation of the "donation" web site button for a site that isn't a registered charity an actual effort has also been made to elicit some or additional compensation; that's clearly a profit motive however cheaply the other products or services available are made to be.

OTOH, our hypothetical poor Starvin didn't do nothin' in his case other than go to the mailbox one morning totally minding his own business and got something out of the blue for an act that may have actually been performed years ago and certainly wasn't done in the presence of the donor or any other action taken on his part to elicit any recompense for that act.

To me, the circumstances of the latter if were to unfold have the aspects of a gift out of altruism and being as weren't done in the course of any activity by the recipient with the intent of causing such action, not business income.

Surely makes one glad one wasn't the recipient of one of John D's dimes! One would have to be sure to report it. (After all, that'd probably equivalent of at least a couple bucks today.) :)

Reply to
dpb

...

How do you prove a negative? :)

Reply to
dpb

There's a note with it saying "This is a gift."

Seth

Reply to
Seth

Oh, we have our ways. ;-)

Reply to
Stuart A. Bronstein

In this case don't have you have to set up a trust to accept the payments?

Reply to
removeps-groups

Nonprofits are generally trusts or corporations. But I don't know that it's mandatory.

Reply to
Stuart A. Bronstein

People aren't non-profits.

Seth

Reply to
Seth

Thanks again to all who contributed to this thread. All (except one) have been friendly and helpful in trying to draw the distinction between a taxable and a non-taxable gift. I guess the bottom line is that these donations are taxable to me as the recipient, but I wish I could see a clearer rationale.

Rather than post three articles >

Yes, good guess! Usually in tax matters I can understand a logical distinction, but here I can't see one. And it bothers me because it seems arbitrary. Money given under no obligation, and with no promise of anything in return -- how can it NOT be a gift?

On the other hand, while preparing this article I looked at Publication 525, and found this on page 31:

"/Activity not for profit./ You must include on your return income from an activity from which you do not expect to make a profit. An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure."

That seems to come close to my situation, though I don't think it's an exact match. Obviously if I do metalwork as a hobby and someone buys one of my pieces, that's income. But suppose I do metalwork as a hobby and I'm showing my pieces to someone, and he says, "Let me give you some money to help you buy supplies in the future. No, I won't accept anything in return; I've just enjoyed this evening and want to help you pursue your hobby." That seems closer to my actual situation. I guess the answer is still that it's "income ... from a hobby", even though it's a gift.

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Hmm -- I wonder. The logical extension of that would be that *if* the donation money through the Web site is taxable, I could make it non-taxable by putting some feel-sorry-for-me story adjacent to the link. (As it happens, I *do* have a medical problem, but I wouldn't solicit money from strangers to help with it.)

But tips are part of wages. Restaurants pay wait staff half of minimum wage because (in theory) they make up the rest in tips. And wait staff would not work at the restaurant without the expectation of tips to make up that difference.

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I think this expresses very well what bothers me.

Reply to
Stan Brown

SIPPED IT ALL TO START FRESH

There has been a LOT of back and forth on this. And I even got a bit curt with the OP about "opinion shopping", which may or may not have been called for or appropriate. I thought I'd take a quick minute and try to summary the crux of the issue -

Compensation is taxable.

Compensation is the word used to describe paying someone for doing something for you.

Gifts are monies given, freely with no strings and for which NOTHING was received.

The waitress who gave you great service, provided you with a service - your tip IS income to her.

The neighbor who's kid has cancer and to whom you give money to help out is treated as a gift as he did nothing for you and on which you based your gift.

The item you bought at auction, paying what you thought it was worth, creates compensation to the recipient.

The money paid to an employee as a Christmas bonus, even though given in the spirit of the holiday IS compensation because you would NOT have given that money to stranger off the street. Had it NOT been for them being an employee they would not have gotten the bonus.

When you give me your old car, because I said I liked it, its a gift - UNTIL I give you $5K on your birthday. At which time IT MAY BE considered a Quid Pro Quo exchange and would likely be reportable and maybe even taxable.

The KEY is to define why something happened, not just how it happened. There are two basic rules of law that govern everything - form over substance (where most attorneys live) and substance over form (where the tax world lives).

The car lease you see on TV shows an "amount due at signing" not a down payment. It shows the lease payment and the number of payments but it does NOT show an interest rate BECAUSE under the legal theory of form over substance it is NOT a purchase contract, its a lease. BUT every tax pro here knows that we have operating leases (true leases) and capital leases (disguised purchase contracts) and we better know how to tell them apart if we want them to survive an examination. SIDE NOTE - when a lease has a buyout clause that is generally less than 10% of the initial cash purchase price it is usually considered a capital lease and treated as a purchase requiring the item be capitalized and depreciated rather than just writing off the lease payments. This requires that we impute the interest rate and allocate the lease payment between interest, which is deductible, and principal, which is not deductible, though we are depreciating the underlying the calculated cost.

For us in the tax world we MUST follow substance over form - the OP had a web site where he made stuff available. His customers could take what they wanted and pay whatever the liked for it, or pay nothing at all. In the end he made something of value available and was compensated for it. Hence, it is reportable income to him.

Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

Right. But the basic rule is more simple than that. Under §63, taxable income is gross income less deductions. Gross income is defined in §61 as "all income from whatever source derived,..."

Gifts are clearly income. They are not taxable because of a specific exemption. If the exemption doesn't clearly apply, under tax law what is given is taxable.

Reply to
Stuart A. Bronstein

Right, income from hobby is not subject to SE tax. If you only had a website then I'd say the donations are Other Income, though people might disagree with me. Deductions are allowed on Schedule A subject to the 2% of AGI limit and subject to AMT, which usually means no deduction. But as you also sell software on the same website it suggests that the website is a way to derive self-employment income, so then I'm inclined to think that your income from the donation buttons is also considered self-employment income.

In California, this so-called half of minimum wage, or the tip credit, is not allowed. Waiters are paid at least minimum wage and tips too. California law also prohibits forced tip sharing forced by the employer. In SF, large restaurants must pay health insurance for their employees, and they often add a 4% extra tax to the bill to get the money to do this.

Reply to
removeps-groups

I recall as a child having a book of baseball rules. Good Lord, the thing ran many hundreds of pages, amazing that the umps could remember it all. In this situation, you are actually soliciting money. I frequent finance blogs and often see "buy me a coffee" buttons to click. That's soliciting. I also tend toward pedantic when it comes to word usage. The word "donate" (in my opinion) should not be used in this context although it commonly is. Others have offered the distinction of helping with one's medical bills and in fact, if I pay you hospital bill regardless of the size, there's no gift tax, the $13K/yr limit doesn't apply. Other than that, the exact circumstances seems to be needed to conclude if it's a gift. In most cases, it isn't. But like the baseball rules, one can spend time contriving situations and then debating what's what. I am an engineer as well, but given the complexity of the tax laws, find myself focusing on the issues I am either impacted by, or that are common for others to need help with. I have no coffee/donate button, but I know any 'gift' one might send is considered an exchange for their reading my work. Taxable.

Reply to
JoeTaxpayer

How is that extra 4% a tax?

Seth

Reply to
Seth

It's like an extra sales tax.

Reply to
removeps-groups

It's a tax on the business, and the business passes it on (though they are not required to) as a separate charge to the customer. Technically it's not a tax on the customer, but the customer generally ends up paying it.

Reply to
Stuart A. Bronstein

I didn't ask what it's _like_.

Is there a law requiring the restaurant to collect it from the customer and remit it to the government? If so, then it's a tax. If not, then it isn't a tax.

Seth

Reply to
Seth

It's a fee.

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restaurants add it to the bill, others don't. This article describes it. Nothing to do with original topic.

Reply to
JoeTaxpayer

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