Are donations to casualty victims taxable income

[mactoolsix]

Client asked today - neighbor recently had major home damage due to flooding (northern CA finally got some rain). Several friends have come together to raise some money to help defray some of the costs -flooring, carpets, paint etc. Will this be taxable income for the victims. Do they need to set up a non-profit to avoid problems?

Thanks,
Mike

[taxxcpa]

It seems more like a gift. It is not earned income or investment income or any other category of income that I can think of.

[taxxcpa]

It seems more like a gift. It is not earned income or investment income or any other category of income that I can think of.

It cannot be considered a charitable contribution by those contributing unless a non-profit organization receives, then disburses the money.

[taxea]

totally agree with taxxcpa....deduction cannot be take for donation to lone individual and gifts are not taxable. Just be sure you can document the amount separately from each giftor just in case.

[Jiggers]

totally agree with taxxcpa....deduction cannot be take for donation to lone individual and gifts are not taxable. Just be sure you can document the amount separately from each giftor just in case.

I agree. And definitely keep a record of the donations especially if you deposit the funds in your bank account.

In a recent audit, the IRS wanted to call deposits with no description as income. Client had to get copies of what was deposited on specific deposits and then get statements from relatives who gave them gifts.

[ATSMAN]

Many taxpayers are confused about this subject. I run into this issue quite often. Someone is sick with a deadly disease that is not covered by insurance. Family opens a bank account for the benefit of that person and people contribute to it. The people who write a check to xyz fund at a bank think they can add that to their charitable donations.

The only exception that I have seen is when the church establishes a fund and the checks are made payable to the church, just like your regular tithe.

[mactoolsix]

Thanks to all for your replies and suggestions.

It helps to get off on the right foot,
Mike