It happens regularly that a hard luck case makes the news. A recent one is a 17 year old honors high school student, working 2 jobs that got jailed overnight by a Texas judge for truancy. I see news stories like this and some generous people feel compelled to just “mail off a check or cash”. I have no idea what they use for an address. Often it’s just the person’s name and city that is reported.
Let’s assume I had a news story about me. I run into a burning building and save two adorable twin babies. Receiving burns that prevent me from working for almost a year. Money floods in and before I know it there’s 20 grand that’s come in from a mail sack full of letters. Cash, Money Orders, Checks you name it.
What are my legal requirements? Can I simply deposit all the money and dance a jig of happiness? Do I have to spend thousands in legal fees for a lawyer to setup a trust or some other administrative process? How are taxes handled? Who counts the money and reports it to the IRS? Since I’m unable to work, then it seems likely I’d be in a very low tax bracket. Maybe not owe anything at all?
Important to note that* I did nothing to solicit any of this money.* The news choose to report a story and all this happened without any encouragement from me.
Honors student jailed for Truancy gets generous donations.
I see someone setup a website for donations. Let’s assume it wasn’t the truant, overworked high school girl. Whoever setup the website did it entirely on their own to help her.
First, there are rules that permit gifts for medical and education expenses that bypass many of the rules about declaring income or calculating gift tax. Since most of these charity cases fall into those categories, the main tax implication is that you can’t double-dip by both excluding the payments from income AND taking a deduction for the expenses.
Second, it’s important that you did nothing to solicit the money. The more active you are in raising money, the more it looks like an activity carried on regularly for profit, which would make it taxable income.
But mostly you’re covered by the fact that the gifts are gifts, requiring no real reporting on your taxes. I would still make sure there’s a proper accounting of what was given, though. If you’re audited, you want to show the paper trail. (I helped a client through an audit somewhat like this - he collected donations for a cause and gave the money to that cause. The IRS wanted to tax him on the income and it took some argument to get them to treat it as gifts.)
Interesting. While I would imagine that relatively few do, are “professional” beggars who make their living begging on the street required to report the money they get as income in any country?
The upside to that is that whoever is the account holder for that can just send the check directly to the hospital, bypassing any need to go to the recipient. Now, as for the account holder, I’m not sure if they have to report anything above $13,000…
I haven’t researched beggars specifically… but off-the-cuff, I’d say that a anyone who can put “professional” (even in quotes) in front of what they do should be reporting the income as taxable income. Or, to put it another way, if it’s paying the rent, it’s probably taxable income. (Under US law, at least.)
I know there’s a lot of legal interpretation about distinctions that hinge on intent, frequency and skill regarding the proper classification of income. Some examples of people who report income differently when they are “professionals”: gamblers, day traders, house flippers, eBay sellers, hobbyists, and competitors for prize money. In all of these cases, doing something casually is different from a tax standpoint than doing it regularly and for profit.
Not that there’s much incentive for the IRS to audit panhandlers… but, yeah, I’d say that some should report their take as taxable income.