Taxes on Donations

[Something123]

If people want to support my content by giving me donations through Patreon or Paypal and the people are not receiving any benefits in exchange for their donation and there are also no memberships or subscriptions (in other words my content is free): 

Do I need to include these donations when I pay my estimated taxes every quarter?

[LoriC17]

Hello,

To be considered a contribution you must meet one of the following:

1. A state or United States possession (or political subdivision thereof), or the United States or the District of Columbia, if made exclusively for public purposes;
2. A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals;
3. A church, synagogue, or other religious organization;
4. A war veterans' organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions;
5. A nonprofit volunteer fire company;
6. A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services);
7. A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;
8. A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.

If you are not a nonprofit mentioned above then this is considered income to you and be reported on your Schedule C for self employment.

Also those contributing to you would not be able to deduct the donations on their tax returns. 

I have provided a couple of links for you explaining charitable (non taxable) donations and schedule C (self employment)

https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deduction...

https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

[Critter-3]

Sorry dude ... you may call  them "donations"  but that is not what they are since you are not a verifyable charity. They are self employment for your producing the channel and posting it and every $$ must be reported as SE income. 

[Something123]

Thank you for your reply. I am not a nonprofit. I am currently a "sole proprietor" without employees.

Are these donations subject to sales tax?

[LoriC17]

Great follow up question!

According to my research Patreon is required to hold sales tax for some payments. Many states are updating their requirements for service and online income treatment for sales tax. 

I would suggest looking within your state sales tax guidelines to find out how online payments are treated. Each state is different.

[Something123]

Thank you again!

If I receive a 1099-K from Paypal or Patreon, does this form specifically break down the payments as donations? If the form does not break it down, then how do I file my tax return specifying that these were donations (general support)?

If I do not/can not get a 1099 form from Paypal or Patreon, what reference/proof of income do I use to file my annual income taxes? (for example, are monthly receipts of income received from the company sufficient?)

[Cindy4]

Hi @Something123 !

TurboTax does not prepare any non income tax returns.

Sales tax enforcement varies greatly from state to state.  It's best to check with your state's Department of Revenue for their treatment of this type of income.

Here's a resource from Patreon which may be helpful to you:

https://support.patreon.com/hc/en-us/articles/360043054911-Patreon-s-Sales-Tax-Requirements

Hope this helps!

Cindy

[Something123]

Thank you for your reply and for sharing this link!

[LoriC17]

The 1099-K will show total of all online income that was generated from the platform. It will be your responsibility to keep record of what the income was. There are currently additional laws being looked at surrounding the 1099-K. 

[Ruth C-L]

I view these payments as gifts. The IRS defines a gift as "Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return." Assets such as cash or electronic payments you receive as a gift or inheritance typically aren’t taxable income at the federal level.

Ruth C-L, CPA, Attorney

TurboTax Expert

[Something123]

Thank you for your reply!

I read on the IRS website that a sole proprietor without employees and who doesn't file any excise or pension plan tax returns doesn't need an EIN (but can get one).

Reference: https://www.irs.gov/faqs/small-business-self-employed-other-business/form-ss-4-and-employer-identifi...

What is the purpose or benefit for a sole proprietor to have an EIN?

[Critter-3]

What is the purpose or benefit for a sole proprietor to have an EIN?

#1 reason is security ... on the W-9 you can enter the EIN and not the SS# so the clients don't have your SS# for the 1099 they issue. 

[VolvoGirl]

One reason So you don't have to give out your ssn to anyone that would be giving you a 1099NEC or 1099K, etc.  

[Cindy4]

Yes, for your identity protection!

[Something123]

Thank you for your reply!

If I got an EIN, and gave it to the companies who will issue me 1099's how will they know it is me?
Once again I am a "sole proprietor" without employees.