Are donations gifts or income to recipient?

[Ekka]

I'm not in the USA but have a deep curiosity due to the borderless internet.

You see, I know and individual who makes money by receiving donations via a web site.

People who donate have claimed that they're allowed to gift up to $12k tax free etc which I have read about.

So my questions are ...

1/ Is it a $12k tax free gift to the recipient per giver or total? In other words if 10 people gifted $12k, total being $120K is that tax free to our website owner?

2/ How is determination made between gift and income? For example, if I ran a website and encouraged donations and earned say $10k a year from this adventure would it be taxable or not?

3/ To step it up some think of this. I actually am a contractor and instead of getting paid for doing service jobs where all earnings are for labor I actually get my clients to donate to me at my website ... is it tax free and a gift or income?

I write this in honesty and good faith trying to understand how the system works. I do know of an individual drawing size-able funds from a website forum which is geared at obtaining "donations" and auction proceeds from member auctions at the site. I just have trouble believing this is tax free but it has been said it is as monies are gifts not income???????????????

Thank you.
Ekka
PS: Where I'm from it's 100% taxable income unless the recipient is a registered charity.

 

[FlyingRon]

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People who donate have claimed that they're allowed to gift up to $12k tax free etc which I have read about.

It's $12K per giver per recipient per year. Although that's not the tax threshold..that's just where you have to file a return. You don't owe gift tax until you hit other limits.

The IRS has info here:

http://www.irs.gov/publications/p950/index.html

2/ How is determination made between gift and income?

Gifts are given without expectation of anything in return.

3/ To step it up some think of this. I actually am a contractor and instead of getting paid for doing service jobs where all earnings are for labor I actually get my clients to donate to me at my website ... is it tax free and a gift or income?

The donations aren't gifts, they are given for services. They are income to you. The website example are income as well. Tips are income. Just because it is discretionary doesn't make it a gift, it's still income if it is in exchange for something else.

 

[LdiJ]

I will give an example of something that is really can be a donation.

An internet website provides free anti-spyware software to anyone who wants it...for the good of the internet in general.

That website also accepts donations (in any amount) from anyone who cares to donate, whether or not they have downloaded the software.

That can be a legitimate not-for-profit organization/activity.

However, if someone is required to make a donation for goods or services, in lieu of a regular payment, that is not a not-for-profit activity.

 

[abezon]

It may still be a not-for-profit activity, but the 'donation' is income to the recipient & the recipient has to include it in the tax return. An example is a condo home owner's association -- they declare the dues as income & deduct the expenses, and are allowed a certain amount of profit before being taxed.

 

[Ekka]

The scenario would be very similar to say this board accepting donations and Mr Big owns the board .... receives $1500 a month average donations.

So would it be tax free as Mr Big didn't really provide a direct service such as one on one consulting but he does own the forum board to which members chat and help others?

I find this a huge "grey" area in the USA for exploitation. In essence one could easily disguise income as receiving gifts and enjoy a nice tax free status.

On the particular board I'm discussing auctions are also held to members where some if not all proceeds of the auctions go to the owner. Members supply various goods and a bidding system takes place .... the highest bidder "donates" to the board and the seller sends them the item. How does this stack up for tax? ...If it's tax free ole Uncle Sam is pretty naive.

Thanks and thanks for your diligent replies so far, great forum this one, very useful.

 

[Ozark_Sophist]

A ponzi scheme is still a ponzi scheme if it is 'non-profit' .

 

[LdiJ]

The scenario would be very similar to say this board accepting donations and Mr Big owns the board .... receives $1500 a month average donations.

So would it be tax free as Mr Big didn't really provide a direct service such as one on one consulting but he does own the forum board to which members chat and help others?

I find this a huge "grey" area in the USA for exploitation. In essence one could easily disguise income as receiving gifts and enjoy a nice tax free status.

On the particular board I'm discussing auctions are also held to members where some if not all proceeds of the auctions go to the owner. Members supply various goods and a bidding system takes place .... the highest bidder "donates" to the board and the seller sends them the item. How does this stack up for tax? ...If it's tax free ole Uncle Sam is pretty naive.

Thanks and thanks for your diligent replies so far, great forum this one, very useful.

No...it doesn't work that way....not at all.

If the organization is a non-tax paying organization then they have to be a legitimate charitable organization. Otherwise, those who donate to them can be denied their charitable deduction. No one is going to agree to that.

The Payors won't accept anything less than a valid deduction from income, either as "cost of goods sold", or supplies, or whatever, or as a charitable deduction. The receiver has to be a legit not for profit organization, or a business earning income.

A small organization might be able to fall under the radar for a while...one that takes in very little from each person/business...but in all reality its not a sceam that could work for very long.