As a flesh-and-blood human being, you can't be a charity, even if you're a charity case. People can't make tax-exempt donations to you the way they can to the Red Cross or a church, but that doesn't mean you have to pay tax on money you're given. It depends on whether the IRS classes donations as a gift or income.
If your uncle pays off your student loans or your church replaces your broken bicycle, those are gifts -- something you get without offering something of equal value in return. You don't pay tax on gifts, and you don't even report them as income on your 1040. If you sell property you receive, however, you may have to pay capital gains tax on the sale. For example, if your father donates a house to you that he bought for $80,000 and you sell it for $160,000, you have $80,000 in income to report.
You've probably seen "donate" buttons on websites that let you contribute via PayPal to online writers you like. If you set up one of these for your own blog, be warned that saying "donate" doesn't automatically make the money a gift. The IRS could just as easily decide the donor is paying you to continue your excellent work. The "Tax Prof Blog" reports that tax attorneys disagree on how bloggers should handle this. Several attorneys recommend you report the donations as income to be on the safe side until the IRS rules differently.
Donations and gifts from your employer draw particular attention from the IRS: The government doesn't want you claiming your end-of-year bonus as a gift rather than as taxable income. The IRS rules say to report most gifts from your employer, but there are exceptions, such as donating toward your education or care for your dependents. If the gift is small, however -- say your boss bought you pizza when you were working through lunch -- don't worry about reporting it.
If you run for office -- whether it's city councilor or president -- any donations to your campaign are tax-free income. This only applies as long as you spend the money on your campaign or save it in a fund for future politicking: If you receive $7,000 in your city council campaign, spend $5,500 and pocket the rest, that's $1,500 in personal income you have to report. To avoid tax problems, track your campaign donations and spending so that you can prove you haven't been dipping into the till.
- Do You Have to Pay Income Taxes on Money Received From a Fundraiser?
- FAQs on What Is Reported to the IRS
- How Much Can a Married Couple Claim for Donations on Their Taxes?
- Can You Deduct Gifts to Your Family From Taxable Income?
- Do I Have to File Taxes If Someone Else Claims Me?
- Are 401(k) Withdrawals Taxable?