Artist asking question about "Donation" button. Is it IRS-friendly?

[estudioz43]

I am a digital artist that displays my work in local venues around my town but also samples online.

I built a free webiste through Microsoft Office Live and on the second page of the site (About The Artist) I included a small donation button next to a list of all the art ahows and exhibitions I participated in over the years.

Am I permitted to post this donation button if I all I am asking for is a donation as a "gift" to help support my time and effort that goes into my artwork every day?

I set the donation amount at $5.00 and I am not asking for more than that. I am not posing as a charity or a non-profit group or anything along those lines.

Am I breaking any type of law with the Internal Revenue Service?

If I do keep the button, does that mean I have to report any donations that I receive as a gift?

I can include the link to the website if necessary.

Thanks

e.

[skier]

Reporting any income is totally your decision.   PayPal does not get involved.   Note, should you be unlucky enough to be audited, there is an electronic history of all your transactions.

Regards,

skier

[estudioz43]

Thanks for the reply, Skier.

I think to be on the safe side I'm going to call the IRS tomorrow.

May as well go right to the top, eh?

e.

[BobsStore]

Calling the IRS won't help you.  You can't use an answer from them as a defense should you get called into an audit.

The official rules - The IRS does not care how or where you earn your money.  They only care that you pay taxes on it.  If you check your history, Al Capone was jailed for income tax evasion and never for any other alleged crime.

A "donation" button may lead people to think that it might be tax deductible for them to donate so you have to be clear that your are not a 501(c(3)) entity and that donations are not tax deductible.  There is nothing illegal about asking people to donate money.  The illegality comes from fraud or misrepresentation.

Now, if you are going to use a mode such as this for "earning" money, you need to be very scrupulous in your record keeping and report all money received either on your Schedule C (assuming you are a sole-proprietorship) or other business tax form (1065, 1120-S etc).  I you are none of these, then this gets entered on the front of your Form 1040, line 21 (at least on this year's form).

Receiving solicited donations constitutes income and not a "gift".  the IRS will also consider it as income.

FYI--I own a tax preparation business in California.

[estudioz43]

Thank you SO MUCH, Bob!!

The last thing I want to do is get into ANY trouble with these guys. I gave it a second thought and I chose NOT to call them because I did think it would flag me in their little computers for later.

On my site I do state that any donation given is a "gift" so maybe I should also add on that it is NOT tax-deductible. I am not using this as my only source of income. Its like a hobby until I do more art shows and get my name out there or until I find someone to license my artwork for posters, T-shirts etc.

I am also aware of the organization Volunteer Lawyers For The Arts based out of NYC. I added them to my Facebook page and I was about to send them the same question but forgot I posted it here first on PayPal.

As an artist I am doing what I can on my end to better inform myself of the business of art. I am also taking a class right now at my local community college but the class starts with the fundamentals first. Which is all good.

The only part I didn't understand is you said the following:

Receiving solicited donations constitutes income and not a "gift".  the IRS will also consider it as income.

I guess I am really soliciting then? So any money that I earn extra in my PayPal account I should keep track of and file my taxes with the proper form for next year? 2010?

I just checked it and no one has donated anything so I guess I'm in the clear to make these revisions now. I don't really expect anyone to donate because we all know how bad the economy is right now. It was just something that was suggested by a friend.

Thanks again for all your advice, Bob.

Have a great weekend!

Erik

[BobsStore]

Hi and thanks for your reply. 

The IRS looming over our lives has a way of instilling fear.  Since we all can't be experts in everything, we do the best we can in areas that are our strengths and solicit help from experts in other areas.

Even the two guys who started Google recognized that they didn't have the necessary business sense to run the finances of a large corporation so they went out an hired an expert for their CFO.  You, as an artist, are very gifted in your talent as an artist and that you may not be as equally talented in the business world so you seek the advice of others.  I might suggest to you that you find someone local who us an expert in business and tax matters to provide guidance to you.  It would be to your advantage to do that.

If you had some terrible medical symptoms you would visit a doctor to find out what was wring rather than try to treat yourself, right??  It should be the same with financial metters.

I'll climb down from my soapbox now.  I wish you a great life and good look to you.

Bob