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Programming Software The Almighty Buck IT Technology

What's the Right Way to Accept Donations? 46

Posted by Cliff from the a-difficult-issue-for-any-open-source-project dept.
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?"
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What's the Right Way to Accept Donations? More

What's the Right Way to Accept Donations?

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  • Donations? Store. (Score:3, Interesting)

    by stick_figure_of_doom ( 729073 ) <rnk-slashdot@k l e c k n e r . net> on Monday May 10, 2004 @08:22PM (#9112331) Homepage
    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 (Score:3, Informative)

    by students ( 763488 ) * on Monday May 10, 2004 @08:25PM (#9112367) Journal
    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. [cesdep.org]

  • Hobbies (Score:4, Insightful)

    by natmsincome.com ( 528791 ) <adinobro@gmail.com> on Monday May 10, 2004 @08:34PM (#9112422) Homepage
    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.
    • That also raises the question of the legal status of an international not-for-profit ad-hoc group meant to develop software

      The individual getting extra income isn't always clear(say a project of ten people, who agree only two should receive the product of the donations)... Think back on how perl "hires" Larry Wall and other developers... That's a tricky situation methinks. Because the donations go to the project(who is theoretically taxable) who gives it back, without making a dime, to members.
  • email address is matt boston 2001 (at) yahoo (dot) com you can forward all your donations there and I guarantee you won't have any problems
  • 1. Start a regular business (from what I have heard, non-profit status is pretty tough to get.)

    I have a side business which I started in 1997. In Seattle, you pay $80/year for a business license. You can register a limited liability partnership with the state. I can't remember what it costs but was under $100 and there are no recurring fees. Get a business bank account ($10/mo) and keep all the money seperate from your own. The only hard part is figuring out the tax returns but you only have to do that

    • 3. Put all the donations in an envelope, use them honestly, and report them as income to the IRS. Then you don't have to worry.

      Of course, if a years worth of donations totals $172.43, then you don't have to worry anyway. Just pay part of your ISP bill and be happy.

      There's no need to register a business, unless you are actually doing business, and accepting donations for your hobby doesn't qualify.

      All of the above assumes you aren't trying to deduct the expenses of your project, of course. If you actua

  • Hrmmm..,. lemmie see..... (Score:5, Informative)

    by BrynM ( 217883 ) * on Monday May 10, 2004 @10:41PM (#9113316) Homepage Journal
    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)

    Be sure to check out the real deal, 501(c)(3) [irs.gov] - but its a bugger of a read! Right here [irs.gov] 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 [copyright.gov] other [lifeandliberty.gov] laws [copyright.gov] that were to "catch up with the times". Why not one to recognize collaborative efforts of this nature?

    • Yes, you appear to be correct OSS should qualify as tax exempt under 501(c)(3) as either educational or scientific research and the GPL is the vehicle describing how the research contributes to the public interest and how it will be distributed.
  • Register your organization as non-profit. Spend all donations on geeky stuff that you get to use but still helps you in providing open source software for the general public...

    That's just my opinion and I don't know much about tax laws other than 1040EZ...

    • Actually, I run a nonprofit and this is what my lawyer had to say about donations. Apparently in all technicality, running a donation button on your website subjects you to all the state laws for 501c3s. This is a REAL pain in the rear and the IRS has huge issues with it. I've been to a couple of nonprofit tech conferences that never knew about the legal issues behind this. Strangely enough, the IRS isn't doing anything about it, but you never know... with the right nudge from Bush...
    • and I don't know much about tax laws other than 1040EZ...

      Clearly. {smile}

      If you register as a non-taxed non-profit (easier said than done), you darn well better spend the money directly on whatever charitable activity your charter said you were forming to undertake.

  • unless you are serving some group (other than your fiends ) in the fashion of education, social charity, or research that benefits everyone. That's my exprience from working with them (non-profits). Otherwise, your income and profit are subject to taxation. But as the previous post indicated, when the numbers are small it's considered a hobby and not a business. However, you're supposed to declare the income (with a profit/loss) and pay tax on profit. So the word 'donation' here may be misleading.
  • If you were to consider it a business, could you deduct a fair hourly wage as loss? That is to say: If you should be earning $30/hr for writing code, and donations received for writing the open source program total only about $5/hr, could you actually claim a $25/hr loss against your real income?

    Separately:
    In my experience, people don't donate to open source projects often nor largely enough for that to be the reason for doing the project. The real reason for working on open source code is: non-monetar
    • Last I remember hearing about this was if you expect to claim anything, your business must have a reasonable expectation of making money. So, it might work for a little bit, but eventually they're going to come after you.
    • 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 actu
    • You cannot claim your time as a loss. However, you can "donate" your time at a standard hourly wage, and then use that amount as a decuction off of your personal taxes as charitable giving.

      However. You better make sure that the place that you are giving it to has all the paperwork done for being a non-profit. And you better be able to show how many hours you gave, and at what rate and document it well.

      The IRS will be more likely to believe you if you aren't the only employee of the non-profit.

      You will pr
    • If you were to consider it a business, could you deduct a fair hourly wage as loss? That is to say: If you should be earning $30/hr for writing code, and donations received for writing the open source program total only about $5/hr, could you actually claim a $25/hr loss against your real income?

      Only if you structure it as a business, and hire yourself as an employee. And that opens up a whole can of worms you don't want. (Think payroll taxes, insurance, social security taxes, income taxes, paperwork to

  • The right way is to promote your project [gnump3d.org] on a big site like /.

    Then subtly include wishlist links [amazon.co.uk], and maybe pointers to other software you wrote [steve.org.uk].

    Maybe you'll get lucky and somebody will buy you a thing or two ...

  • Non-sequential bills.
  • It's harder to tax a hard drive than $.

    Unless you have a big success of a project I wouldn't worry about it. Most IRS-type gov. agencies go after small fish. Investigators cost money. Does it make sense busting a $10k/year OSS project to extract $5k of taxes (incl.penalties) when it will cost them $20k to perform?

    Now, if some corp. gives tonnes of money to some gov. official to go after OSS projects because they are hurting the corp.'s bottom line...You are Frelled!

    And if you want to register your projec
    • Actually the IRS really tends to go after the big fish. You do not make a name for yourself collecting $25 from ma and pa kettle. You make a name for yourself collecting 2.6 million from a used car dealer or CEO that claims that he is paying his 12 year old 80,000 a year as an assistant.
      A corp donateing tons of money to a gov offical and that offical going to the IRS to lean on some little guy is a good way to get on the front pages of the Washington Post.

  • Since SourceForge is part of OSDN and they have Lawyers and business people, why don't they help?
    They more or less created the catch-22 situation. Heck, they could even make a small profit.

    This would be a win-in situation:
    Pregrammers get to program without having the IRS after them for $50/y taxes.
    SourceForge gets a new source of revenue by sorting out the legal mumbo jumbo.
  • 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 ho
  • In cash of course. :-)
  • I'm an elementary technology teacher for Berkshire Local Schools [techkid.org] in NE Ohio. We gladly accept donations of all sorts of used equipment. Sometimes we get decent machines, sometimes we get junk. Many of our classrooms have 486's and donated computers get put into service quickly. We have an official "moratorium on purchases of new technology equipment" again for the 2004-2005 school year.

    I've found that creating a Cleveland computer donation [k12.oh.us] page helps inform prospective donators about what we accept. We of

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