Running a Fundraiser on Facebook - how do I avoid paying taxes?

[aliceand]

Hi.  I set up a fundraising page on Facebook to raise funds for our dog club, a non-profit.  I am NOT the beneficiary of the funds.  I received that notice from FB after receiving $600 in the account requesting the last 4 numbers of my SSN and I don't recall what else.

On the site, I am selling spots for raffled items so I'm collecting a lot of $10 to $20 donations.  I did not open a bank account as I plan to move the funds from Paypal straight to our dog club account monthly.  For this purpose, I'm assuming Paypal is considered a bank.

How do I avoid being dinged for taxes?  I set up an EIN thinking I should give that info to Paypal instead of my SSN - ??  Will I be 1099'd by Paypal?  

What IRS form would I use to show all the funds (less any small expenses) are being swept to the dog club?  

Thank you to anyone who can steer me in the right direction.

[Carl]

I'm no authority on this. But I've seen similar situations, and when it came to taxes, it did not turn out good for the individual who was in the same position you are in right now.

I would expect your dog club to be registered as a non-profit organization, which means the organization would have their own Federal Employer Identification Number (FEIN) and a bank account set up using the organization's FEIN. I would also think the club would have their own facebook page. If that's not what you have, then all that needs to be set up yesterday, if not sooner. Otherwise, if the organization is not set up as a non-profit and registered as a charitable organization, then someone is paying taxes on that money like it or not. Presently, that person is assumed to be you. Now I don't know this for a fact, but I would expect that if an SSN or EIN is not provided in a timely manner, then FB may very well shut down the fund raiser.

[aliceand]

Yes, the dog club is a non-profit.  I did see some comments where people have done Gofundme accounts for a friend and the advice was that they would not be taxed for the funds raised, but they should have gotten an EIN to make things cleaner.  They just have to show that the funds went in and then out to the person the money was raised for.  What I want to know is what are the forms so I can take a look at them.  

Also, I'm hoping I can find a way to account for all that in TurboTax.

[ee-ea]

@aliceand 

See this IRS info

https://www.irs.gov/charities-non-profits/application-process

[rjs]

There are no forms for what you are doing, because you're doing it all wrong. The donations should have been made directly to the dog club, not to you. Any money paid to you is not a tax deductible donation for the donor, even if you give the money to a charitable organization. The money that people paid to you is taxable income to you, and you will have to report it on your tax return.

PayPal is not a bank. (I don't think it would make any difference if it were a bank.) Yes, you will get a 1099 from PayPal. Having an EIN would not make any difference. If the EIN is in your name, any income reported to your EIN is still income to you, the same as income reported to your SSN. Having an EIN does not create a separate entity or organization, or relieve you from having to pay tax on the income.

Money paid for raffle tickets is never a tax deductible charitable contribution, no matter who the money is paid to.

Being a non-profit is not the same as being authorized to accept tax-deductible contributions. In order for contributions to the dog club to be deductible by the donors, the club has to get a determination letter from the IRS authorizing it to accept tax-deductible contributions.

[aliceand]

Hmmm.  Our dog club is a non-profit with tax-exempt status and we file IRS Form 990-N annually.  If I turn the Paypal account into a club account, would that take care of the issue?  Or do we need a determination letter for this specific purpose as well?

I have not told our donors that their donations are tax deductible.

[aliceand]

I was just reading IRS Notice 1340 -- Tax-Exempt Organizations and Raffle Prizes -
Reporting Requirements and Federal Income Tax Withholding 

"Generally, an exempt organization must report raffle prizes if (a) the amount paid reduced, at the exempt organization’s option, by the wager (the amount a person paid for the chance to win a prize), is $600 or more; and (b) the payout is at least 300 times the amount of the wager. The organization uses Form W-2G for this report.

We are not currently offering items that cost more than $200.  Most are in the $50 to $100 range.  So it appears that we don't have to report those donations.  However, if we grow our donor base dramatically, we might occasionally offer an item that runs about $1500, and I see we would need to report that.

Am I interpreting that correctly?

[rjs]

I don't know if PayPal would let you change the ownership of the account. You have to ask PayPal about that. Even if they do allow it, any payments that you received prior to the change still went to you personally, not to the club.

If the club sets up its own PayPal account, and the donations are made to that account, that would get you out of the loop and eliminate your tax problems. But again, that would only work for future donations. The payments that were already made to you are income to you.

The organization only needs one determination letter. The determination letter is for the organization, not for a specific activity or purpose.

You seem to be mixing up reporting prizes and reporting donations received. The Notice 1340 that you quoted is about reporting prizes. For any prize of the specified amounts, the organization has to file a Form W-2G with the IRS and give a copy of the W-2G to the person who won the prize. I don't think the organization has to report individual donations, regardless of the amount, but check with a tax professional who specializes in non-profits.