What's the Right Way to Accept Donations?

Schapht asks: "Not long ago, SourceForge.net started offering users and projects the ability to accept donations. But there doesn't seem to be much information on the legal implications of accepting donations. Should open source projects start registering themselves as businesses? Would there be fines if they didn't? Are there any options for a project that can't afford the processing fees involved in registering a business?"

Comments

The Microsoft way

[Anonymous Coward]

1. Donations are pre-determined based on the number of copies you expect and are called price tag.

2. If the possibility of making a profit off donations is there, you hire the right people and pay them money, which in most countries serves as legal tender for real estate, means of transportations, food, drinks, hardware and software.

3. You allow the customer to test a simple product for 30 days and a more complex one for 120 days after which you insist they pay.

It's not that complex, really.

Re:The Microsoft way

[etymxris]

Microsoft Way: I pay to eat at a restaurant.

Open Source Way: I donate to a charity so that everyone can eat (including me).

Re:The Microsoft way

[cujo_1111]

And unsurprisingly more people pay to eat in restaurants than give to charity, both in real life and your analogy.

Re:The Microsoft way

[etymxris]

And unsurprisingly more people pay to eat in restaurants than give to charity, both in real life and your analogy.

Very true. Usually people give money to such projects because they would like to contribute, but don't have the skill, time, etc. This isn't about trying to find a way to make a living for OS programmers, but rather a way for those that want to contribute to be able to do so.

Donations? Store.

[stick_figure_of_doom]

For the record, donations are a rather shotty way to get some cash from your project/comic/free thing. The only way to lure people into opening their wallets is to sell some cheap merchandise with your name on it. I've seen so many Java/Microsoft t-shirts, this could become quite popular.

It depends

[Anonymous Coward]

If you are a bank, they fork it over.
If you are a charity, they haul it over.
If you are a hooker, just bend over.

My Method

[students]

I use a standard paypal account. No fees. If donations are small, you don't have to report them to the IRS. As I understand it, the donator may even claim a tax deduction even though you aren't a 501C3 nonprofit. Check out the donate button.

Re:My Method

[Anonymous Coward]

I'm pretty sure anyone can give anyone else a *gift* of up to $10,000 in a single year with no tax consequences--just another way of looking at it. :) However, providing a donation link on the site "may be considered a solicitation of charitable contributions subject to registration and regulation by statute in approximately 38 states," as noted by Network For Good, which puts donators and donatees together.

Re:My Method

[Anonymous Coward]

sorry, that was supposed to link to http://networkforgood.org/npo/fundraising/donation s/.

Re:My Method

[students]

I'm not too woried. For one thing, I haven't gotten any donations yet, and don't realy expect to. I read several legal web sites, which indicated that the main purpose of registering as a nonprofit was to make finding grants easier and to prove to your patrons that you were using the money they gave as you claim.

This is me: "More often than not, a nonprofit corporation begins as a nonprofit association a loosely organized organization ran by mostly volunteers. In a nonprofit association, the members can be held liable for the debts and liabilities of the organization." - http://www.legal-database.com/

I have no debts, and I don't think I could reasonably be held liable for anything, because I deal with only with information, which is mostly protected by the Constitution. I guess there is a risk of slander or copyright infringement, but I still don't worry.

Re:My Method

[guacamolefoo]

I think your assessment of the risk level is accurate, but:

I have no debts, and I don't think I could reasonably be held liable for anything, because I deal with only with information, which is mostly protected by the Constitution.

I deal with "information" too. I am a lawyer. Just because I deal with "information" doesn't exempt me from taxation on income.

I think that the general sense here is that if the thing that you are pushing is available regardless of whether payment is made or not, then it may be a gift. On the other hand, there have been restaurants, for instance, that did not charge anything for food -- people pay what they think the meal is worth and they do not receive a bill. Such places surely would be subject to income tax.

In any case, as long as things are on a de minimis level, I don't think that anyone is going to come sniffing around your door. If you can stop working and if you are able to live solely off of those "donations" I think that you would want to spend a few quality hours with your attorney and/or accountant to see how to report it.

GF.

Re:My Method

[Anonymous Coward]

Just FYI, I will never ever transfer money via PayPal, no matter what the cause. And I'm not alone.

Hobbies

[natmsincome.com]

Most open source projects would be classed as hobbies (In Australia any way) Until your earning about $5,000 to $10,000 it's treated as a hobie. That means your supposed to declare it as income and you don't get and tax breaks. If your getting more than that a year I'm inpressed.

Once you start making more than that you need to creat a company get a business number etc. BUT you can now claim more expences and tax deductions.

So if your getting say $10 to $1000 a month from donations. Your supposed to declare it as income. If you don't you may be liable for back taxes but that's about it. If your getting more than that it's worth creating a company for the tax breaks. Computer, Internet and Software are paid for by the company (expense) and your paid from the company.

Basically I'd try to treat it like a small business but if your getting less than $500 a month it's still just a hobie.

Re:Hobbies

[perlchild]

That also raises the question of the legal status of an international not-for-profit ad-hoc group meant to develop software

The individual getting extra income isn't always clear(say a project of ten people, who agree only two should receive the product of the donations)... Think back on how perl "hires" Larry Wall and other developers... That's a tricky situation methinks. Because the donations go to the project(who is theoretically taxable) who gives it back, without making a dime, to members.

Neutral

[Phazz666]

I see both sides of this. If we start donating then these organisations may end up going corrupt. But if we don't then it might limit the potential of our dear open source programs that we adore so much. The question is: "Is corruption a price to pay for open source programs?"

my

[mattboston]

email address is matt boston 2001 (at) yahoo (dot) com you can forward all your donations there and I guarantee you won't have any problems

Re:my

[Anonymous Coward]

Was that mattboston2001@yahoo.com ?

Good, the cheque is in the mail...

Re:my

[Anonymous Coward]

mattboston2001@yahoo.com yeah I got it. Or for those of you who don't like to copy and paste, the guy would like his donations to mattboston2001@yahoo.com. Please make a note of it. thanks.

In the end, you have two options

[Neil Blender]

1. Start a regular business (from what I have heard, non-profit status is pretty tough to get.)

I have a side business which I started in 1997. In Seattle, you pay $80/year for a business license. You can register a limited liability partnership with the state. I can't remember what it costs but was under $100 and there are no recurring fees. Get a business bank account ($10/mo) and keep all the money seperate from your own. The only hard part is figuring out the tax returns but you only have to do that once and pretty much copy the previous years return with the new figures. The IRS is not too picky with small companies making less than $30K or so. I have noticed some pretty big mistakes on my returns but they never sent me anything about it. Anyway, the total cost of a simple llc is going to be something like $20/mo. Not really all that much if you think about.

2. Put all the donations in an envelope, use them honestly, and hope the IRS doesn't find out. Chances are they won't.

You never know how things are going to work out so going with the business is the safest.

Re:In the end, you have two options

[V. Mole]

3. Put all the donations in an envelope, use them honestly, and report them as income to the IRS. Then you don't have to worry.

Of course, if a years worth of donations totals $172.43, then you don't have to worry anyway. Just pay part of your ISP bill and be happy.

There's no need to register a business, unless you are actually doing business, and accepting donations for your hobby doesn't qualify.

All of the above assumes you aren't trying to deduct the expenses of your project, of course. If you actually have enough money traveling around to make doing so worthwhile, then you should create a seperate business, with seperate accounts and everything.

Re:In the end, you have two options

[tcopeland]

> report them as income to the IRS.
> Then you don't have to worry.

Well said. Like they say - if you tell the truth, you don't have to remember what you said.

Hrmmm..,. lemmie see.....

[BrynM]

INAL and all of that. From some creative googling I found that you might try looking for "charitable organization law site:irs.gov" and "private foundation law site:irs.gov". If you need to know your state laws, try the same searches with "site:(whateverState).gov". For example, mine would be "site:.ca.gov".

Heres some Goodies:
(many are PDFs)

• PUBLIC CHARITY CLASSIFICATION AND PRIVATE FOUNDATION ISSUES:
• DOMESTIC ORGANIZATIONS WITH FOREIGN OPERATIONS
• LIMITED LIABILITY COMPANIES AS EXEMPT ORGANIZATIONS

Be sure to check out the real deal, 501(c)(3) - but its a bugger of a read! Right here is a spot I think you might land in if you worked hard enough. I'm sure an OSS project could qualify as furthering science, but that might be a fight. It may be easier to jump through the hoops of a private foundation status. Rather than try to find what you qualify for in it, I would concentrate on what would disqualify you. It might be a more manageable list. ;)

The law should really be amended to keep up with this, IMHO. We have many other laws that were to "catch up with the times". Why not one to recognize collaborative efforts of this nature?

Re:Hrmmm..,. lemmie see.....

[stanmann]

Yes, you appear to be correct OSS should qualify as tax exempt under 501(c)(3) as either educational or scientific research and the GPL is the vehicle describing how the research contributes to the public interest and how it will be distributed.

Non-profit

[$exyNerdie]

Register your organization as non-profit. Spend all donations on geeky stuff that you get to use but still helps you in providing open source software for the general public...

That's just my opinion and I don't know much about tax laws other than 1040EZ...

Re:Non-profit

[d4rkmoon]

Actually, I run a nonprofit and this is what my lawyer had to say about donations. Apparently in all technicality, running a donation button on your website subjects you to all the state laws for 501c3s. This is a REAL pain in the rear and the IRS has huge issues with it. I've been to a couple of nonprofit tech conferences that never knew about the legal issues behind this. Strangely enough, the IRS isn't doing anything about it, but you never know... with the right nudge from Bush...

Re:Non-profit

[tverbeek]

and I don't know much about tax laws other than 1040EZ...

Clearly. {smile}

If you register as a non-taxed non-profit (easier said than done), you darn well better spend the money directly on whatever charitable activity your charter said you were forming to undertake.

Your business is not suitable for a 501(c)3

[zipoh]

unless you are serving some group (other than your fiends ) in the fashion of education, social charity, or research that benefits everyone. That's my exprience from working with them (non-profits). Otherwise, your income and profit are subject to taxation. But as the previous post indicated, when the numbers are small it's considered a hobby and not a business. However, you're supposed to declare the income (with a profit/loss) and pay tax on profit. So the word 'donation' here may be misleading.

Yes...

[Cyno01]

Microsoft actually made the bulk of its money in t-shirts...

Profit / Loss

[jubitzu]

If you were to consider it a business, could you deduct a fair hourly wage as loss? That is to say: If you should be earning $30/hr for writing code, and donations received for writing the open source program total only about $5/hr, could you actually claim a $25/hr loss against your real income?

Separately:
In my experience, people don't donate to open source projects often nor largely enough for that to be the reason for doing the project. The real reason for working on open source code is: non-monetary self benefit. Like having something to put on a resume, creating/bettering a program for personal use, etc...

More money, more problems. That's just the way it is.

Re:Profit / Loss

[Nos.]

Last I remember hearing about this was if you expect to claim anything, your business must have a reasonable expectation of making money. So, it might work for a little bit, but eventually they're going to come after you.

Re:Profit / Loss

[NutscrapeSucks]

If you were to consider it a business, could you deduct a fair hourly wage as loss?

No. You will be smacked down hard. (Think about it: nobody would pay any taxes if you could get away with this, because they would pay themselves to watch TV.)

However, You can structure your OSS Hobby as a business, and that allows you to write off all your computer equipment. DSL line, hosting, etc. This will last for a few years until the IRS shuts you down for being unprofitable. This works even better if you are actually a contract programmer.

If you're planning to do this, get an tax accountant. As mine says "Make your life a business."

Re:Profit / Loss

[Gaijin42]

You cannot claim your time as a loss. However, you can "donate" your time at a standard hourly wage, and then use that amount as a decuction off of your personal taxes as charitable giving.

However. You better make sure that the place that you are giving it to has all the paperwork done for being a non-profit. And you better be able to show how many hours you gave, and at what rate and document it well.

The IRS will be more likely to believe you if you aren't the only employee of the non-profit.

You will probably have to go through amore rigorus requirements/bid/accept process, even if you are doing all of those steps, otherwise thr IRS will smack you down for being too open ended

Re:Profit / Loss

[cpforbes]

However, you can "donate" your time at a standard hourly wage, and then use that amount as a decuction off of your personal taxes as charitable giving.

This is absolutely false. You should read this from the IRS http://www.irs.gov/publications/p526/ar02.html#d0e 1345. If you give your time to a non-profit you are a volunteer.

Re:Profit / Loss

[Carnildo]

If you were to consider it a business, could you deduct a fair hourly wage as loss? That is to say: If you should be earning $30/hr for writing code, and donations received for writing the open source program total only about $5/hr, could you actually claim a $25/hr loss against your real income?

Only if you structure it as a business, and hire yourself as an employee. And that opens up a whole can of worms you don't want. (Think payroll taxes, insurance, social security taxes, income taxes, paperwork to support all this, etc.)

How to do it right..

[stevey]

The right way is to promote your project on a big site like /.

Then subtly include wishlist links, and maybe pointers to other software you wrote.

Maybe you'll get lucky and somebody will buy you a thing or two ...

Small, unmarked

[sulli]

Non-sequential bills.

UK

[Fraser J Gordon]

In the UK you can run a business as a Sole Trader without having to prepare or sumbit any legal documents. (Sole Trader meaning that you are the sole owner).

Re:UK

[txviking]

You still have to notify the internal revenue about it within 3 month.

Ask for gifts instead.

[denis-The-menace]

It's harder to tax a hard drive than $.

Unless you have a big success of a project I wouldn't worry about it. Most IRS-type gov. agencies go after small fish. Investigators cost money. Does it make sense busting a $10k/year OSS project to extract $5k of taxes (incl.penalties) when it will cost them $20k to perform?

Now, if some corp. gives tonnes of money to some gov. official to go after OSS projects because they are hurting the corp.'s bottom line...You are Frelled!

And if you want to register your project as a business, under what country? What if your project starts with mostly UK members and then all or most leave to be replaced with Australian members? Remember, these people are PROGRAMMERS not international Corp. lawyers!

Re:Ask for gifts instead.

[LWATCDR]

Actually the IRS really tends to go after the big fish. You do not make a name for yourself collecting $25 from ma and pa kettle. You make a name for yourself collecting 2.6 million from a used car dealer or CEO that claims that he is paying his 12 year old 80,000 a year as an assistant.
A corp donateing tons of money to a gov offical and that offical going to the IRS to lean on some little guy is a good way to get on the front pages of the Washington Post.

This is another job for SourceForge!

[denis-The-menace]

Since SourceForge is part of OSDN and they have Lawyers and business people, why don't they help?
They more or less created the catch-22 situation. Heck, they could even make a small profit.

This would be a win-in situation:
Pregrammers get to program without having the IRS after them for $50/y taxes.
SourceForge gets a new source of revenue by sorting out the legal mumbo jumbo.

sole proprietorships, etc

[1eyedhive]

I ran a small S-corportation for two years (well, my dad did, i just did everything). if you incorporate, LLC or DBA then you show up on somebody's radar (IRS, state). the advantage of a DBA ($50 for 5 years here in FLA) is that you can write off a lot as business expenses.
For instance, my dad and i both do a lot of driving (me a on-the-road computer consultant, him a notary), two cars, 75% of all expenses (mileage, maintenance, gas) are written off as business expenses. Ditto for the net connection, web hosting, and a few boxes.

Donations, afaik, if they're small no one will make an issue of it.

I deincorporated when i turned 18 (no need for the 'cover') taxes and fees on cops are outrageous. Stick to a DBA or your own name (taxes come out the same as the DBA = you).

You're planning to take donations for an Open-source project. use your legal name and everything, if it's less than a few k (i think $2000) the IRS won't give a dang, but check with your friendly neighborhood accountant.

Use Paypal, easiest way to do it.

networkforgood.org

[Anonymous Coward]

I do volunteer work for a not-for-profit group serving "at-risk" kids in my local area. The organization is a 501(c)3 chartered organization. The likes of AOL, MS, and others formed "Network for Good" to provide small not-for-profits a method to accept donations via credit card without having to set up a merchant account online: networkforgood.org. Network for Good provides a direct link from my organization's web site to the donation page.

Network for Good charges about 3% processing fee for each donation; a $10.00 donation nets $9.70, a low "rake", to say the least.

Although Network for Good knows about every registered 501(c)3 and can accept donations for any of them, they do not allow for a direct link unless your organization registeres with them and provides additional information. They do some vetting I would imagine.

You can find the Apache Foundation by searching on networkforgood.org.

OK, it could have been PayPal, but I've heard such horror stories about PayPal that I wouldn't deal with it.

For the record, the word you're looking for...

[Anonymous Coward]

is shoddy, not shotty.

Cash

[macdaddy]

In cash of course. :-)

Donations for Schools

[unangst]

I'm an elementary technology teacher for Berkshire Local Schools in NE Ohio. We gladly accept donations of all sorts of used equipment. Sometimes we get decent machines, sometimes we get junk. Many of our classrooms have 486's and donated computers get put into service quickly. We have an official "moratorium on purchases of new technology equipment" again for the 2004-2005 school year.

I've found that creating a Cleveland computer donation page helps inform prospective donators about what we accept. We offer documentation for corporate write-offs. I keep in touch on a regular basis with those people who have made donations in the past. I monitor eBay for heavy items in the local area that need to be picked up and thus are less likely to sell. I keep an eye on my local FreeCycling page.

Perhaps the easiest way to accept donations is by recycling cell phones and ink cartridges. This program costs us nothing, teaches students the value of recycling and provides our district with additional technology items. Contact me with additional questions or items to donate.