Sold wall map as fundraiser for a 501c3 non-profit. Need to report on tax returns? How?

Question

In my spare time outside of my full time job, I produced a wall map for as a fundraiser for a 501c3-registered non-profit organization. I then sold the maps via FundRazr.com and money from sales was deposited in my PayPal account. Most of the payments came in during the 2018 calendar year, but 3 came in after 1/1/2019. Purchasers had the option of adding $5 for shipping. I had the maps printed in late 2018 at a cost of around $800. I also purchased some mailing tubes, mailing labels, tape, etc. Most of the maps were mailed in 2018 and I kept all of the USPS postage receipts (in addition to receipts for all of the other expenses).

I broke my goal of raising $1K by about $200! In Feb 2019, I transferred all of the PayPal money to my personal checking account and I mailed a $1.2K check to the non-profit. They later sent me a letter with their EIN and the amount that I donated - specifically for tax deduction reporting. I donated 100% of the profits to that organization and kept not a penny for myself. But even though I netted $0, I assume that I still need to report to the IRS the PayPal payments I received and then deduct the costs for printing, mailing and the donation amount. Is that correct?

If so, how do I handle the fact that this process straddled 2018 and 2019? Do I report all of the PayPal payments I received before 12/31/2018? How do I do that? Then I suppose I could deduct all of my expenses up to 12/31/18? But because I didn't write that donation check until 2019, it'll appear that I had netted about $1.2K on 12/31/18. Because I don't have a lot taxes deducted from the pay checks of my full time job, I usually ended owing or receiving between $50 and $100 on my tax return. This year, I may have to pay even more because I hadn't written that $1.2K check before the end of the year. Sound right?

Thanks for any insight that you can provide!

Answer 1

Since no one else has answered in a few months, this might be useful to future readers...
(or you, if you do it again; $1,200 is pretty good in my book)

Check with a tax adviser (required warning... 'cause I'm not one).

I suspect that next time it would benefit you to run the whole thing through a business (tax schedule C).
You can deduct your business expenses against your business income, including the payments to the 501c3 (which if you use their name, you can treat as a licensing fee).
Just make sure you send all the money you receive to the charity before Dec 31.

There are a few possible holes in this plan which I'll mention.

• When you run a business you are expected to turn a profit... or to try to... if you don't expect to turn a profit that's called a "hobby."
  (A hobby is never tax deductible.)

• I don't know how shaky the ground is you are standing on when you are paying all of your profits from a company to a non-profit... it doesn't "smell" like a business in that case.

So, again... check with a tax adviser in your state.

The biggest problem is that you sold the maps through two businesses, either of which may report it as income to you (paypal and FundRazr).
It is pretty convenient to use them I'm sure, but maybe there is a way to cut them out - like maybe the 501c3 can sell the maps directly? (You said you sent 'all the money' which implies that you ate the cost of the materials, so you're no worse off if they tell you who to ship to).
With a track record of making $1,200 they may be open to this (unless they're large).

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The easiest/best solution is to get personal checks from people that are made out to the charity instead of to you, and let the charity cash them... then you don't have any income. The obvious problem with this is that people don't really use personal checks these days :–)

Answer 2

Look at how it looks to the IRS:

You in 2018 tried to have a side business, it had some expenses and some sales. Then in early 2019 you closed the business, and then you decided to donate an amount equal to the profits to a charity.

Because you didn't structure your enterprise as a non-profit, or as a charity, you have to treat your endeavor as a side business, the charitable deduction is not related.

You should have approached the charity first and asked for their help in structuring the activity to minimize the tax impact. Of course they would have had to approve your activities because they would be viewed as endorsing your product, and they might not want to do that.