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Based on Will I be taxed for accepting money to help needy?, I am wondering how the law goes.

Suppose a kid is taking part in a school activity (e.g. http://www.firstlegoleague.org) along with a team of 5-6 other kids and then there are expenses that all kids share equally. The total cost is $500 and there are 5 kids, and four of the kids pay $100 each to fifth kid's parent, who later does the purchasing of kits etc for $500., without taking a single dime as profit.

Is this collection of $400 from other kids taxable?

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    FLL is a fantastic program! Great of you to do your due diligence! – Sam Weaver Jul 26 at 1:31
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    @sam-weaver thanks – Raj Jul 26 at 13:09
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    The fifth kid's parent may end up spending $490 to $550 without returning ( as others do refuse to take that sum 2.50 back) or asking back the extra ($10 from other four parents). – Raj Jul 26 at 13:15
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    What about going to a restaurant with a friend and the each's bill is $15 ( including taxes) and one friend give other friend cash $15( with not tip) and other friend pays the restaurant $38, is the $4 gift to the friend ? – Neil Jul 26 at 13:28
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    De minimis is a Latin expression meaning "about minimal things", – Raj Jul 26 at 19:35
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The parent is not receiving any income, merely acting as an agent or conduit for the group. If the group compensated the parent for their assistance it could be considered wages, and they'd have to pay income tax on it. But this is hardly different from the group opening a shared bank account that they all contribute to, and then writing a check from that account. That might be reasonable if the group had ongoing expenses, but it would be overkill for a one-time payment.

36

Consider for a minute what the implications would be if this were a business or nonprofit. Taxes are collected from net earnings. 5 parents contribute $100 each to an organization, the organization buys $500 of stuff.

 $500  Revenue
($500) Expenses
—————
    0  Net Income

$0 of net income times a 15% tax rate is a tax liability of $0.

If the Legos purchased ultimately only cost $480, there would be $20 that would be taxable, technically. If the numbers you're using are real this probably all falls under de minimis hobby activity anyway. But the $100 received from each payment is definitely not income.

The purpose of non-profit organizations is facitating the ability for donors to deduct their donations from their income, that is the issue being raised in the other question. In your question none of the parents are attempting to deduct the $100 cost/contribution from their income.

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    A non-profit is not the same thing as a charity. You can be a non-profit and not be a charity. – mhoran_psprep Jul 26 at 10:02
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    @quid thanks. I am sure authorities do understand these things that involve petty cash and are not 'business' or profit/loss activities – Raj Jul 26 at 13:13
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    Argh 'Legos' - when did that become a thing!! – Strawberry Jul 26 at 13:18
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    @Strawberry english.stackexchange.com/questions/10839/… – mattdm Jul 26 at 18:19
  • Even worse; it turns out I'm part of the LEGO machine – Strawberry Jul 26 at 20:18
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This could easily be considered a personal gift, which doesn't have any tax implications below $15,000 currently. Even if it wouldn't be considered a gift, it shouldn't be considered income for the person who made the purchase on behalf of a group of people, who all benefit from the purchase.

  • In particular because one can argue that the purchased item is common property (i.e. everyon owns an equal share). As such, collecting the money is not income. – TomTom Jul 26 at 16:40
1

As someone who has worked with FIRST Robotics and non-profits, you might want to consider looking into what it'll take to start a non-profit org for your team. It doesn't have to be a 501c3, as there are a wide variety of non-profits that don't pay taxes on organizationally related income, but do a little research about what would work best in your case.

Becoming your own non-profit can be a bit expensive for fees, so I don't recommend it unless you are going to be getting and spending a lot of money (as in thousands a year for several years at a time). There's plenty of bookkeeping that goes into a non-profit to satisfy the IRS, so there's a time element involved. It's just something to consider.

You can also see about attaching to another org that is already a non-profit. That way you can donate to a specific fund that the costs of the robot kits and parts come from. This way the parents can benefit from a small tax deduction as well as the org handling any tax related issues, which aren't likely if you get with an educational or crafty/DIY org (like a makerspace). Getting in with the right non-profit is essential so they automatically don't have to worry about taxes for your contributions.

Good luck and have fun!

0

In the USA, the IRS generally ignores "small stuff" such as:

  • Transactions less than $600, such as a 1099 for a short-time job.
  • Transactions that are not filed with a taxpayer ID.
  • Cash transaction less than $10,000 (beware of several small ones that add up).
  • Gifts less than $15,000.

So, in this case, unless the other parents want your taxID, and you give it, then the IRS doesn't even know about this.

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    Isn't the "cash transactions less than $10K" more of a banking regulation than about tax? Large cash transactions are indicative of money laundering. – Barmar Jul 27 at 16:39
  • It is possible for parents A, B, C, and D, to pay E, in cash. E might then deposit that money in the bank and write a check or pay with credit card. – MikeP Jul 28 at 4:24

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