One day, you are talking to a friend, and she shares with you the financial struggles she is facing. She has been cut in hours at work, her glasses broke and her car needs some repairs. Your heart breaks for your friend because you know how she is struggling and can never seem to get ahead. In your generous spirit, you decide to start a crowd-sourcing campaign for her. You go online to set-up the account and let friends and family know about the campaign efforts. To your delight, the campaign raises $1,000 for your friend! Everyone celebrates the selfless generosity of all who contributed. Everything seems great!
About a year later, your friend comes to you sobbing. She received a statement from the Internal Revenue Service (IRS) stating the money raised is considered income, and she owes income tax on the money. Your friend does not have the money to pay for the taxes. Furthermore, the extra $1,000 added to her income now affects other programs which are income-based. Her student loan repayments have increased, and the amount she has to pay for her health insurance has also increased. It seems the $1,000 raised for your friend is now costing your friend nearly the same amount in taxes and other fees.
In your zeal to fight for your friend's rights, you investigate. You read on the crowd-sourcing website that the money raised on the site should be considered a gift because the sum raised is done so via individual gifts given by numerous people...but you should consult your personal tax account for further information on tax laws. Now, you investigate with the IRS. You find there are no clear rules regarding crowd-source fundraising. The money raised should be considered a gift and thus not taxed; however, since the money given to the individual is done so via one company (and the crowd-sourcing company takes a percentage of the funds raised as a fee), the money is now deemed income, and applicable taxes must be paid on the money. To your heart-break, nothing can be done. The taxes must be paid, and the generosity of family and friends is now costing your dear friend precious money she cannot afford to give up.
Now, you ask yourself what can a person do to help a friend in need? The answer is give money directly to your friend. The IRS allows $14,000 a year to be given as gifts between two people tax-free. Additionally, try to give cash. Some state and federal programs require access to the program participant's bank account(s). All money including gifts must be declared and are considered income. The agencies often randomly check participant bank accounts and look for money (in the form of a check) given as a gift. Any money deemed a gift and not declared by the participant is subject to benefit penalties and/or program suspension or termination. Lastly, if the person has bills which need to be paid, offer to pay directly to the company. There are no benefit penalties or tax laws against paying your neighbor's bills.
Who knew there could be so many negative implications for the generosity of one's heart? To be safe, always ask the person who needs the funds how best you can contribute to their situation. May the gift of generosity be upon you-all. "Now this I say, he who sows sparingly will also reap sparingly, and he who sows bountifully will also reap bountifully. Each one must do just as he has purposed in his heart, not grudgingly or under compulsion, for God loves a cheerful giver. And God is able to make all grace abound to you, so that always having all sufficiency in everything, you may have an abundance for every good deed." (2 Corinthians 9:6-9)
No comments:
Post a Comment