Forgive me for being a business newbie here, however, most of my experience is with very basic business stuff -- you do the work, you get paid, you take your deductions, and then you pay the IRS a percentage of your profits. Not hard concepts for this newbie to master. However. Am about to start fundraising for a fairly large project that is more of a "I want to do this to benefit a community of people who need it" project than anything I really expect to make oodles of money on. (Am going to bust my tail doing web design, mostly, for the fund raising. And get the community members involved in affiliate sales on stuff. I need about 20 grand or so for the project total, to have a comfortable cushion to absorb growing-pain related costs and pay for programming beyond my level of expertise. And insurance and stuff. Anyway. Here's the question -- I could spend the next six months working 80 hours a week to make the money I need, and then start the project early next year when I have my nest egg. Except ... if I "earn" 20 grand this year I have to pay taxes on it. Ouch. Which means I may realistically need to earn a good bit more ... Is there a way to "protect" that money, legally? If I earned and spent it all in one year I'd be in a lot better shape. Sigh. Yes, I'm a complete business newbie. Help? (Anyone know a good site to read up on this kind of thing? The learning curve is steep, but my reading comprehension skills are good. I just don't know where to start!) -- Leva
You're correct. Earnings will be taxed at their normal rate. You may be able to spend some of the money of your project and deduct that but fundraising has separate tax rules itself you should look into. Assuming you declare as a non-profit, try here: http://www.irs.gov/charities/index.html
Thanks. I am waffling between a corporate model and doing the project as a non profit. There are obvious advantages to both, both from a legal/financial end and, for this community, from how I will be perceived by the community. Looks like I have some heavy reading to do, and some discussions with my accountant. (Wish there was a way I could "set the money aside" until I needed it. Raising the money is going to be a long, uphill slog and giving part of it to the IRS rankles since I know that I'll need every dime to get the project going. Short version of project: custom social networking site for a very specific user base with very specific needs and concerns. Likely won't be a big enough site to be worth large money, but big enough to need multiple servers and some robust infrastructure. We're talking tens of thousands of likely users, but definitely not millions.)
Here is a slightly more specific link from the IRS that talks about charitable organizations: http://www.irs.gov/charities/charitable/index.html You'll need to start a organization that's a separate entity from yourself, then file for tax-exempt status. Here's a life cycle of a public charitable organization. It includes links to other IRS documents that will help you. Good luck!
I agree with latoya, that there needs to be a non-profit formed and I'd do that now. I don't know that social networking is classified that way but it probably depends of the group it's in aid of. Might be a "Social Welfare" org. http://www.irs.gov/charities/nonprofits/article/0,,id=96178,00.html Just my opinion but raising the money and having it paid directly into the non-profit (rather than to yourself) would keep the initial capital intact. Your accountant can be more specific.
If you call it fund raising as in chartable contribution, you need to be a non-profit to even collect the money. Otherwise, you could be charged with fraud and hit with all kinds of government problems. You could earn the money in the manner you stated and that would be earnings and it would taxed like any other income. If it is truly a chartable project, you may want to contact a related organization and pitch your idea and see if they will allow you to operate under their non-profit. The problem with that is you may have to work with in their guidelines and they may ask for full control over the project. My wife looked into doing a local charity project that required collecting donations. It is a pure nightmare unless you want to become a full fledged non-profit than you will be required to keep and submit records to both state and local governments. We scratched the donation part and just did it out of our own pocket on a smaller scale. Good intentions are not met with smiling faces from the government when it involves money.