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

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.

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.

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.

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?

Yes...

[Cyno01]

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

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."

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.