kids pooling money for Lego League and taxes

Question

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?

Answer 1

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.

Answer 2

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.

Answer 3

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.

Answer 4

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!

Answer 5

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.