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Andrea, Esq.
Andrea, Esq., Attorney
Category: Legal
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Experience:  25 yrs. experience in family law, estates, real estate, business law, criminal defense, immigration, and employment law.
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I am starting a joint project with a colleague to help each

Resolved Question:

I am starting a joint project with a colleague to help each of us on our career paths. We will hire an orchestra of professional musicians supplemented with non-professionals for the purpose of creating individual DVDs for both of us. The DVD's will be used as audition materials for college degree programs and job applications. In addition to paying the musicians, there are many related costs including: travel, venue rental, insurance, music rental/purchase, videographer, sound equipment, instrument rental & cartage, orchestra contractor, etc., totaling between $8000-$10,000. I live in CT, she lives in CO. The project will take place in CO. We will soon launch a crowdfunding project via an internet website to help fund the project. We're hoping to raise about $5,000 or more. The question is: do we need to report the donations as income?
Submitted: 1 year ago.
Category: Legal
Expert:  Andrea, Esq. replied 1 year ago.

Hi, My name is XXXXX XXXXX I am a Licensed, Practicing Attorney with a post doctoral degree in Federal Taxation and I will be glad to assist you with your question,

 

Internal Revenue Code Section 61 defines income as follows:

 

(a) General definition. Except as otherwise provided in this subtitle, gross income means all income from whatever source derived ........."

This definition also includes "compensation for services, including fees, commissions, fringe benefits, and similar items"

 

Therefore, any income that is derived from your activities will be includible as "income" for income tax purposes.

 

The attorney whom your colleague consulted may not have stated that exactly as reported by your colleague. While it is true that the recipient does not have to pay any income on a gift, the Federal Gift Tax states that the Donor (the person making the gift) can make gifts totaling $13,000 annually without having to file a Gift Tax return and without paying a Federal Gift Tax on such gift.

 

"Donations" from an audience, internet or otherwise, are not really donations, nor are they gifts for purposes of the Internal Revenue Code and the Internal Revenue Service. For Internal Revenue Code purposes, "donations" can only be made to 501(c)(3) charitable corporations.

 

To summarize, any money coming in is considered "income" according to Internal Revenue Code Section 61; money sent to you from your activities on the internet or elsewhere are not classified as "gifts", they are considered taxable income. However, even though you must report this as income, it will be offset by all your expenses which are deductible.

 

I realize that this is not exactly the Answer you were hoping for and it would have given me great pleasure to give you the Answer you wanted to hear, but I have an ethical obligation to you to give you only correct Answers and information, so I am respectfully asking that you not hold the Tax Laws applicable to your situation against me,

____________________________________________________________________________

 

 

Please be kind enough to rate Excellent Service" so that I receive credit for assisting you,

 

Bonus and Positive Feedback on survey is very much appreciated,

 

 

 

 

Andrea, Esq., Attorney
Category: Legal
Satisfied Customers: 11624
Experience: 25 yrs. experience in family law, estates, real estate, business law, criminal defense, immigration, and employment law.
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