So I'm an online artist and didn't really do commissions till this year. However, last year, I did have a Ko-Fi account which accepted donations. I wasn't really advertising nor encouraging people to donate. My friend found it and gave me $15 dollars. I was wondering which form I would have to fill out or if I have to fill one at all.
Note: I haven't really used the money for anything, especially things that would help me make newer profits.
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The IRS and Crowdfunding
Essentially, the main takeaway from this information put out by the IRS is that donations are only taxable income if donors receive something in exchange for their donation, such as a service or product. If not, they're non-taxable gifts—at least if you're a private individual and not a business. Given that you state you just began doing commission-based work this year (2021 as I am reading it), then for 2020 you would be considered an individual and not a business.
Gifts you receive are not taxable income. However, money that you receive as compensation for services performed would be self-employment income and you would be required to file a schedule C to report your income, deduct business expenses, and pay tax on your net profit. It sounds like you think this was a gift, and if this is the only money you received, the IRS is unlikely to ask you about it. But if this was compensation for services performed, it would be on your honor to report it as taxable income. It doesn’t matter if you haven’t withdrawn the money to spend it. The fact that you received it in your account is enough, if it is taxable.
Yes! To clarify, I did start commissions and selling items this year!
@mdomanta14 wrote:
Yes! To clarify, I did start commissions and selling items this year!
But you said the money was paid last year? It may be a gift.
Certainly any money received this year will be self-employment income. If you think you might also receive gifts not related to your work, you may want to create a separate account for gifts, so you aren't mixing gifts and business income. You should keep your business accounts separate anyway (don't use the same PayPal account for your personal shopping as you might use to buy supplies or collect business revenues.)
Hi! Just want some clarification because I'm in the same situation.
I've just set up a Ko-Fi for people to support my writing. I'm not offering commissions and anyone who donates isn't getting anything in return. This means it's classified as a gift, correct? And I won't need to claim it unless I give them something back in return? Thank you!
@nikkizio wrote:
Hi! Just want some clarification because I'm in the same situation.
I've just set up a Ko-Fi for people to support my writing. I'm not offering commissions and anyone who donates isn't getting anything in return. This means it's classified as a gift, correct? And I won't need to claim it unless I give them something back in return? Thank you!
If you are providing a service (writing), then anything of value you receive for that service is taxable self-employment income, even if you don't provide a specific extra benefit to donors or members. Basically, the only reason people would send you money is because they like your writing and would like to read more of your content, and don't want you to curtail your writing to take some other kind of full-time job, right? So that's self-employment income as a writer. The payers are paying for content you create, even if they are paying "in advance" so to speak, and even if there is no specific promise of certain content at certain times.
(Or put another way, you asked people to support your writing. If you took the money and never wrote any new content, the payers would feel cheated, even if you did not make a specific promise, and they would stop supporting you. So it's writing income.)
That makes sense, thank you! One more quick question: what tax form would I fill out for that then?
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