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Plink, I just wanted to let you know that the section you linked there does not say that income received from patreon is tax-free. It is explicitly saying that a gift given without the expectation of a benefit can still be considered taxable income under federal law and possibly state law. Patreon will begin reporting a 1099-K form to the IRS for all accounts that earn over $600 a month starting in 2023 for the 2022 tax year. https://support.patreon.com/hc/en-us/articles/207099566-Will-I-receive-a-1099-K-form- That means that they will report your taxpayer ID # or Social Security # for the bank account associated with the account and the IRS will compare that against your W-2 and 1099-B forms submitted by you on your tax filings at the end of the year to determine if there are any discrepancies. Gifts are tax-exempt, but donations are not. Unless the gift is being sent directly to you for your personal use, then it does not automatically become tax-exempt. The IRS uses a "preponderance of circumstances" standard for determining a gift. Acting as the middle man and accepting donations personally can mean that the donations are not considered a "delivery of the gift by the donor to the donee" that is required for the contribution to be considered a gift because the donor is not "gifting" the money to you personally. The IRS is more likely to believe something is a gift when it comes from someone you have an association with. One total stranger handing you money as a gift is believable, but 300 total strangers handing over cash and expecting nothing in return? That’s a tougher sell - even if it is 100% the truth! The IRS will not assume that by default. Especially if the fund is set up where the donors and recipients are both comprised entirely of members in a select club or organization (like the Something Awful forums) and not completely random. If you get a 1099-K from Patreon, the IRS got a 1099-K with your name on it from Patreon. In this case you MUST report the income, even if you, or your tax professional, figures out a way to make such income non-taxable. You will have to provide all the information on your filings and either claim it as non-taxable income or pay taxes on it. For real world purposes, this all comes down to what gets reported to the IRS. If Patreon sends you a 1099-K or other tax reporting form for filing your taxes (as they will start doing this tax year), that means they reported that amount to the IRS as income. The IRS will assume that these payments are income, and their computers will flag your return if the income you report doesn’t match. Unless you are a 501(c)3 organization, your donations are not automatically assumed to be tax-deductable and all patreon contributions are assumed to be income for reporting purposes: https://support.patreon.com/hc/en-us/articles/360004304332-Can-nonprofit-organizations-use-Patreon- The IRS considers all funds sent to a personal account through a crowdfunding campaign to be "constructively received" as income by the donee. quote:Section 1.451-2 of the Income Tax Regulations sets forth the constructive receipt doctrine and provides that income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. You may be able to argue to the IRS, and have them agree, that your circumstances do not qualify as income. But, it is NOT assumed that as a default. That means that after you submit you tax filings in 2023, it is likely that the IRS will send you a letter about the discrepancies after Patreon submits a 1099-K on your behalf. This could also open you up to review of previous unreported income from earlier tax years. I think you could have a case with the IRS that your donations are not considered income, but the fact that you have sole discretion over how the funds are handled, deposit them into a personal bank account, and receive them from a site where all donations to non-501(c)(3) entities are considered taxable income make that not a sure bet. If they do a look-back period for previous unreported income and they consider your previous unreported 1099-K income as constructively received, then you could be on the hook for roughly $13k in taxes per tax year for 2020, 2021, and 2022 (the exact amount would depend on the amount of your other taxable income for those years and what state you reside in). I would strongly urge you to be proactive in either setting up receipts through a different payment provider, forming a 501(c)(3) org and changing the TIN/SSN number on your patreon account to a registered 501(c)(3) organization, or contacting the IRS with the details of your arrangement and asking for a pre-emptive ruling on whether your donations are constructive receipts BEFORE Patreon reports your 1099-K (which would happen in February or March of 2023). Patreon taking 20% also sucks, but that it is a minor issue relative to your potential personal tax liability. Based on your posts it seems likely that you did not pay the taxes on your 1099-K income for the past 2 tax years (and the upcoming 2022 year) and you should make sure you have either proactively covered yourself via an EO tax-exempt 501(c) org designation or determining the facts with the IRS to get a clearance BEFORE your 1099-K from patreon is submitted for the 2022 tax year. The IRS does not do emails for personal inquiries, but you can call this number to talk with someone who can answer questions about specific fact inquiries regarding individual income liability: 800-829-1040 I think you have a decent case for a favorable exemption from the constructive receipt doctrine under the totality of the facts argument. But, as an individual taxpayer who only has self-imposed restrictions on the availability of the income, it is not a 100% sure thing. You might be able to slide under the radar when Patreon doesn't report your 1099-K income, but with mandatory 1099-K reporting in 2022, close to $50k of unreported income, and the automatic flagging system for discrepancies between a tax filing and the 1099-K forms it is not a sure thing. I would strongly advise you to spend 20 minutes on the phone to sort this out and confirm or form a 501(c)3 organization before the end of the year. The potential worst case scenario is about $39k in tax liability for 3 years of unreported income and even the best case scenario is still a few weeks of annoying letters and phone calls to sort it out after the flagging of discrepancies in your 2022 filing. Leon Trotsky 2012 has issued a correction as of 06:47 on Oct 18, 2022 |
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Oct 18, 2022 06:25
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i say swears online posted:is there no fine + interest? i may be in a similar situation from last year but with only about 1% of that total amount lol It depends on the specific circumstances, but for a normal individual tax return, unless you are doing something very obvious that makes it 100% certain that you are attempting to purposefully hide income maliciously, then the IRS will usually just send you a letter saying that you need to file an amended return and pay X amount now. And they will provide a number to call and and address to mail if you want to dispute it and file an extension. The IRS also has de minimis rules, which means that they will not go after someone who owes less than X amount of taxes due to underpayment. That amount changes every year, but is usually around $230. So, if the total amount you failed to report results in less than ~$230 extra dollars owed and they don't send you a letter, then you're fine. Also, if it was last year, then Patreon likely did not send a 1099-K to the IRS, so they will never know anyway. You're most likely fine and don't need to do anything if you haven't heard from them by now about a 2021 filing.
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Oct 18, 2022 06:40
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speng31b posted:https://www.irs.gov/newsroom/some-things-to-know-about-crowdfunding-and-taxes I said I think he had a decent case for exemption, but he will 100% have to disclose the income in his filings and either pay taxes on it or make a case to the IRS that his disbursements qualify as gifts. The main thing is that Patreon will now be reporting and filing a 1099-K for all accounts with over $600 in 2022. quote:If a Form 1099-K is filed, the crowdfunding organizer or the beneficiary of the fundraiser will receive a copy, depending on who received the funding directly from the crowdfunding website. Given the amount of money that has gone unreported (~$43k per year for 3 tax years for a total of roughly $130k), the other circumstances that cut against the IRS definition of a gift, the fact that all donors and recipients are members of a group that requires payment to join, and that Plinkey has said he maintains no records and deletes all correspondence regarding the disbursements, it is not a 100% thing. With that much at stake, it absolutely makes sense to either do it legit or take 20 minutes to call and get a pre-emptive ruling. If the IRS doesn't get a report of your income, then you can risk it. But, they will 100% get a report and will flag his tax return if he does not report or pay the taxes. That isn't a situation where you want to just wait and see because "he might be okay" and do nothing. Spending 20 minutes to make sure will be well worth your time and the IRS is much more favorable to a dispute over qualifying taxable income if the first time you make the dispute isn't after they contact you for an inquiry or audit.
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Oct 18, 2022 07:24
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Catgirl Al Capone posted:its Dec 1 now and I think tensions would be dissipated somewhat if we knew what the admins' plan was for the thread The admin position was posted a month ago and hasn't changed. 1) The thread was marked as "unofficial" and un-stickied. 2) Plinkey is running this with no transparency and possibly going to run into tax issues in 2023, but it is pretty clear in the OP that you are sending the money into a black box and people should realize that. 3) It is not endorsed by SA and people know what they are getting into when they give money. It's not clear what happens to extra money at the end of each month, if 100% of the money goes out every month, or what he is doing for tax purposes, but he is upfront about that in the OP. Many people have definitely been helped by it, but it is also totally possible for many people to be helped and still have a large chunk skimmed off the top. We won't know without documentation, but the people donating generally are doing it because they trust Plinkey and understand that he is running this in this way. I think everyone - especially at this point - pretty much knows that. 4) There is a new more transparent and legal charity goonfund being set up and people are welcome to donate there. https://forums.somethingawful.com/showthread.php?threadid=4014910 Please try not to poo poo up this thread or the other one too much. Catgirl Al Capone posted:did plinkey do any of the things jeffrey asked for? He was supposed to provide a spreadsheet with some info by November 17th, but did not. It was not an official demand or a condition for anything, but Jeff asked and he said he would. Jeff directed him to a lawyer who could help him set up a charity to avoid tax issues, but it wasn't followed through on. He is not required to do that, though. I don't think Jeff has had any further discussion with him about the fund, but if he does and if there are any changes, then I am sure he will announce it. There has been nothing in the mod forum about any further discussions and the only thing we have been told are the points above and note that neither of the funds are officially supported by SA, so caveat emptor for both.
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Dec 1, 2022 17:25
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