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I'd like to start this with a disclaimer that I realize that a full, clear-cut answer should be sought out by a lawyer. I am more so curious about what other users of this community have done


Say that I had a small program that I had developed for fun, that I wished to release to the public. I'll drop it out there with one of the various open-source licenses, and probably put it up on SourceForge or Git in case if anybody should ever want to fork/maintain/check out code.

Also say that I wanted to accept donations for the project, with absolutely 0 expectation that people will send any money. However, if somebody donated in order to buy me a beer or a pizza for the work that they liked, I would accept gladly.

The question, then, is what are the general requirements of accepting donations? Can it go into a personal account with no questions asked as a "gift," or do I need to setup an LLC to avoid any taxation issues? (US citizen here).

Again, yes this should be lawyer discussed, but I also know that many projects that I see have the ability to donate, and assume that the community probably has a decent amount of experience in this regard.

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Pierre's answer is correct. I thought I'd add clarification about your LLC question: you're not going to have taxation issues as an individual. It's just miscellaneous income to put on your tax form that will add to your other income. Taxes are calculated on the total. Nothing complicated or, in my years of mixed income advised-by-my-accountant experience, anything to sweat. The same rules apply to the millions of people who sell something on ebay every year, for example. If it was a larger percentage of your income then a business might be in order, but not in this example. –  Matthew Frederick Jan 13 '11 at 17:11
    
@Matthew: In the US, as long as you're not getting a lot of money, it's probably considered hobby income. You just add it in to your taxable income. If there's a lot of income (and I doubt you'd get that on a donation button), they may consider it a business and you pay Social Security etc. taxes on it. Setting up an LLC is for limiting your liabilities, not avoiding taxes. Of course, don't rely on what I'm saying; if you really need to know, consult a tax accountant or lawyer. –  David Thornley Jan 13 '11 at 18:25
    
@David Right, that's exactly what I was trying to say to the OP. :) –  Matthew Frederick Jan 13 '11 at 18:53
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This actually might be a better question for money.stackexchange.com –  JohnFx Jan 13 '11 at 19:27
    
seems to me like you want to consult an accountant rather than a lawyer –  jk. May 3 '11 at 9:58
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3 Answers

up vote 16 down vote accepted

A donation is an income you must declare to IRS or any equivalent in other countries.

Unless you create a non-profit organization that is exempt of taxes in some countries, you will have to contribute to the community by paying the amount of tax defined by law.

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Separate income, or gift? The wording is where I get hazy. –  espais Jan 13 '11 at 16:46
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@espais: A gift is an income and gifts are taxable. The not-hazy part is the not-for-profit status, for which you most probably wouldn't qualify. –  haylem Jan 13 '11 at 16:50
    
ahh, that makes sense –  espais Jan 13 '11 at 16:55
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@haylem: IANAL, but my understanding is that a bona fide gift is not taxable income in the US. However, the authorities are fussy about what they consider gifts, and anything that resembles a payment (even voluntary) for something is taxable. For example, tips in restaurants constitute taxable income for those getting them. A donation button is a whole lot more similar to a restaurant tip than me giving my nephews something for Christmas. –  David Thornley Jan 13 '11 at 18:20
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en.wikipedia.org/wiki/Gift_tax_in_the_United_States –  user2567 Jan 13 '11 at 18:22
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I believe the word donation is part of the confusion. I believe the correct word is gratuity (tip), which like wait staff at a restaurant is typically considered taxable income in all jurisdictions that I am aware of (Canada / US).

Donations for tax purposes means gifts to non-profit (not-for-profit), or to charities (who can issue tax receipt).

Beyond the income issue, I cannot think of any issues. Evaluate whatever mechanism you select, to understand how they handle fraud, frozen accounts, "irregular activity", and whether your destination account may be deducted any potential "charge-back" fees. Non-monetary gifts (i.e. Amazon wish-list) is another potential avenue for users to give you thank-you gifts.

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This may help. Here is a link to the pertinent part of a Supreme Court opinion discussing how a court will decide if the money sent to you will be considered a gift (which is not taxable), or compensation (which is taxable as income) http://supreme.justia.com/us/363/278/case.html#285

Congress should be ashamed of the tax laws it has written. Too often, there is no way to know for sure if you owe a tax or not, until a court decides.

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