Fund Raising

[Harvey Lucas]

I have a client.

The mom is going in for surgery and will be in a wheelchair for up to 6 months.

Mom is a dance instructor and supports herself as such.

The daughter is going to do some "Fundraising" to help raise money for moms living expenses while mom is in recovery.

There is a big dance event function coming up.

Daughter is going to set up a booth and sell flowers as a fund raising activity.

I contacted the State Department of revenue and learned that, a) Daughter can set up a "temporary registration" for the event, b) Daughter will be required to collect sales tax on the sale of flowers, c) State Dept of Revenue will send outa reporting form for daughter to fill out and send in the sales taxes collected from the event, d) Daughter can do two such "one time event" registrations per year without having to set up a formal business, e) if flowers sell for $5, she will collect sales tax on $5, if someone makes a extra "donation" of say $10 extra, she only collects sales tax on $5 as long as flowers are available for sale at $5.

If she were a registered non profit organization, then she would be exempt from collecting sales tax, however, since she is not, she must collect sales tax.

That is how it works regarding State taxation. The state she lives in has no income tax so that is not an issue.

The question is how to treat the activity for IRS tax purposes.

The daughter will be collecting money in the form of flower sales and donations.

She will accumulate the money in a bank account under daughters name, and also the tempory activity name "moms recovery fund".

When the time comes, she will use the money in the account to pay moms living expenses directly to the motgage company, the utility company etc. These payments are of course considered gifts by daughter to mom.

How would we treat this for Income tax?

Is it a schedule C of daughter?

I anticipate that with the one event, and possible another, daughter will raise $4000 to $8000.

Thank You,

Harvey Lucas

[WhiteOleander]

Since she is not in the flower selling business, I think the income would be reported on line 21, not subject to SE tax. I believe you report gross sales less COGS. All other expenses would go to Sch A subject to 2%.

[Harvey Lucas]

Following a step further,

my guess is that the portion of the proceeds that are deemed to be "donations", ie, that portion that is over and above what the sale price of flowers is, would be considered a tax free gift from the customer/flower buyer/donator, to the daughter.

On line 21 1040, daughter will only include flower sales, and not any of her tax free receipt of gifts.

Then, when she pays moms bills, or gives money directly to mom, that is considered a gift from daughter to mom and as long as it does not go over $12,000 in a year there is no gift tax or gift tax reporting requirements.

I can see how this type of arrangement could be abused, ie, disguising an actuall business operation as a partially tax free fundraising avtivity. However, if it is legit, and the daughter cleary keeps seperate track of the "donation amounts", then in my mind it should be ok as outlined above.

Harvey Lucas

[erchess]

Non Profit

Why are they not setting up a formal nonprofit?

I am thinking that donations to help only one person are not tax deductible but I see locally so many funds to benefit particular unfortunate families and sometimes there will be indication that donations are tax deductible. I have never pursued this issue because I have never had a client who donated materially to such a fund.

[Harvey Lucas]

Too much hassle

to set up a non profit for a single 2 or 3 day event!

In fact, to tell you the truth, I have never set up a non profit, so to me it is like a black scary hole of something I know nothing about.

However, for sure, it is at least as comprehensive as setting up a regular corporation, with some added steps after that. Way too much effort for a one shot deal!

Since daughter WILL NOT be a registered nonprofit/qualified 501c, then of course donations/gifts folks give to her, even tho specifically earmarked to help mom, are of course NOT TAX DEDUCTIBLE CHARITABLE CONTRIBUTIONS.

As I see it, they are simply gifts (except for flower sales) from various people to daughter, and thereafter, gifts from daughter to mom.

There is a little twist to this (isn't there always).
There is a good reason why we don't want the gifts and/or flower sales to go to mom directly, but that is the subject of a completely diferent discussion that is not relevant to the taxation issues we address here.

To be sure, sometimes charitable organizations get involved to help people in this and similar other situations, and if they were involved, the activity would of course run thru that organizations books, and possibly donations would be tax deductible.

However, if you don't have such an organization handy to do this for you, then you, or a friend or relative, would have to conduct the activity as an individual and diferent rules, as we have outlined here, would apply.

Harvey Lucas

[AJsTax]

non profit

By definition an individual can never qualify as a 501(c)(3) organization.
A donation of goods or money to an individual or family that is not a charitable organization is a gift, not a charitable donation and is not deductible by the taxpayer.
I do deal with this issue every year. One thing that I found in my research because a family member was directly involved is that if you donate money to a church and specify that the money is for a particular family or missionary it is a gift and NOT a deductible charitable donation.
Usually at one of these fundraisers for a family or individual that needs help all the money given is considered a gift by each person attending and supporting the event. Is that totally correct? I do not know, but a one time event is not likely to cause problems. Now if the daughter continues to sell flowers etc. in the hope of raising more money I as sure it would be considered a business.

[DaveO]

I have seen a number of these private benefit drives and have always treated them as gifts given and recieved. As long as nothing of value is given in exchange for the gift I see no problem with that treatment regrdless of the time frame involved.

The purchase and sale of the flowers is more of a business. I agree with the line 21 reporting as long as it's for two such events. Beyond that and it begins to look more like a "C".

[Harvey Lucas]

Thank you

all so much for your good advice.

It is always reassuring to me to gather the collective wisdom of this board.

I had always wondered how these types of activities were to be taxed, however, never had to really know untill now.

As sort of a side note, regarding the Sales Tax issue on the flower sale portion.

The state told me that if the fund raising activity were being conducted by a registered nonprofit then there is no requirement to charge sales tax on the sales.

Thank you again,

Harvey Lucas

[Barb]

So, No Reporting Required?

I have read all the post on this Fundraising issue discussed here, and from what I have read it seems all are in agreement that there is no reporting requirements for the "donations". Is that correct?

I am the preparer for a family that did a fundraiser for Medical bills for their serious ill child and they have just asked me about the reporting issue. This event did not sell anything, it was just a meal, silent auction and raffles. I told them they did not have to worry about taxes that each person there just donated, personally, to their child. Since every person can give a gift to anyone each year, we are using that for not reporting anything.

I hope everyone here agrees with me.