Selling on Behalf of a Nonprofit - Taxes?
My boss asked me to sell some items for her on Ebay - items we (public library) received for free and now want to sell to use as supplemental funds for our programming. It's started to become more money than I thought it would, and I was wondering if I've dug myself into an IRS hole by using an account under my name and directed to my bank account instead of setting one up using the library's info. We decided that I'd take 10% of the profits and give the rest to the library, so as of now I've made about 70 and the library's made about 700. I'm freshly 18 and have no idea how any of this works, have only ever paid taxes on the income from my job, which doesn't meet the threshold for federal income tax. What should I do?
25 comments
momtoabeautifuldaughter
·1 year agoOh no, you need to stop immediately.
If you made these sales on your account, then that income is considered your income by the IRS and you will be responsible for it at tax time.
slippinjimmy
·1 year agoAnd the income will adjusted when filing by the amount paid out to the library which as at least one other poster stated would be deducted as an expense (cost of goods).
This is essentially a consignment type transaction (with a very high payout to the consignor).
tobaccocardyahoo
·1 year agoDonations by an unincorporated entity may be limited in deduct-ability depending on whether one itemizes deductions or not.
It is not all that simple.
The current informal arrangement does have risks. And may carry tax liabilities which may be unfavorable to the OP. Self employment income is taxed at rates which include the "employer's share" of FICA.
The real risk is that of an audit, inadequate record keeping and penalties. Not everyone who engages in this sort of activity has problems but 10% is too little compensation for the risk involved.
powell-collectibles
·1 year agoYou have received plenty of advice and opinions – some of it good. What you really have to figure out is what you want to do. Do you want to continue selling and taking a piece of the proceeds? Do you want to work at this strictly as an hourly employee? Are you enjoying what you’re doing? Are you uniquely positioned to do this work before the library? Figure those things out, then you go from there. Whatever you want to do, there is a way to accomplish it.
mam98031
·1 year ago@luckylittlelibrary
You can continue with what you are doing. Just make sure that you issue receipts to the Library for the money you give them from the sales of the items. You will record that in YOUR records as an expense like you would your Ebay fees, shipping fees and shipping supplies.
However if you are purchasing your own shipping supplies, 10% is a pretty low commission for you.
Or a cleaner way is as @soh.maryl described to you. I would add that this would be a better way to go with this as your Library is not likely to be a for profit corporation and if they are an approved 501c Charity, Ebay has special fees terms for them. So you should look into that as the library can make more money this way.
Then the library could just pay you for managing their Ebay account and shipping the items out.
ryry-jj
·1 year agoOnce you set up a non profit business account for the library to sell on, you will not be taking that 10% anymore either. Just accept your normal pay as these listings you do just become part of your job.
BTW, the city account/attorney will need to be involved and give approval before you can fully proceed with setting up the account. This is not as simple as a bake sale fundraiser. My experience with Cities, they dont even want to receive the money from vending machines as they still have to account for it in some fashion
soh.maryl
·1 year agoBut, depending on the way this library is set up, the city may not need to be involved at all.
Our local library system and many of those in neighboring locations is a separate entity that the city is not part of.
caldreamer
·1 year agoEBAY reports your sales to the IRS (because your social security# is on your EBAY account tax liability will go to you). IRS requires that you report gross sales on "every dollar" earned (doesn't matter if you receive for 1099 or not).
I suggest your library create their own 401c non-profit EBAY account to sell these items.
luckylittlelibrary
OP1 year agoI see. Thanks for the help. I've emailed my boss to see if there's someone at the library who will help me, and if not, I'll try to consult with my family's accountant.
lacemaker3
·1 year agoThis situation just keeps getting worse. You said that you are 18 years old. So there's a somewhat reasonable explanation for you not knowing how this (selling for a charitable organization) should have been handled.
However, your boss is presumably a librarian, and there is no excuse for a librarian not knowing or being able to research what the correct approach was here. Librarians are expected to have a university education, and are taught how to do research, in general, in order to be able to help their library users. Your boss should have known better than this.
Your boss has taken advantage of you, in a very inappropriate way. Your boss is presumably older than you are, and has enough experience to be in a supervisory role over your work. This is an abusive situation.
Your family's accountant should not be asked to help you resolve the situation for the library, that is the library's responsibility. As others have said, this may be pretty complicated. I believe that most libraries that do this have a separate organization set up as their charitable "branch", which is registered as a legal charity. That all needs to be set up legally and correctly before any charitable sales begin.
But you may need a lawyer to get you out of the legal mess that your boss has dumped you into.
an-57470
·1 year ago@lacemaker3
I worked in and was part of the “university environment†for years. I can attest that having a “university education†does not always equal intelligence. 🙂
powell-collectibles
·1 year agoI think this is getting way over blown. OP is not selling as a charity - just giving most of the proceeds to a nonprofit organization. Those can easily be considered – and should be – as acquisition costs.
sltom6
·1 year agoYes...getting waaay overblown. He doesn't need a lawyer and there's no "legal mess" to get out of. Otherwise, some good advice going forward has been given here.
dhbookds
·1 year agoI assume the library is a city or county entity...... Suggest to the librarian that she call the city attorney and get a non profit set up........ Donation laws have changed since they raised the personal exemption and I "think" on some levels a donation is not deductible on a $1 for $1 basis..... but need a professional accountant to tell you how that works.........
luckylittlelibrary
OP1 year agoIf I claim whatever money I give back to the library as a donation, would that fix my problem?
soh.maryl
·1 year agoNo -- You have already been credited with every single sale you made on behalf of your library.
An accountant (as mentioned previously) will have no trouble setting this up for the library.
Frankly, hard to understand your reluctance.
sltom6
·1 year agoI don't sense any "reluctance". He's 18 years old and just asking questions.
soh.maryl
·1 year agoOK, you're right. Apologies.
powell-collectibles
·1 year agoAbsolutely, you should be able to figure this out with an accountant. You can treat your payments to the library like a cost of acquisition. Basically, you are a consignment seller. There isn’t anything radically difficult about this situation.
one thing though - you should hold back some of that library payout to pay for your accountant.
dol-7977
·1 year agoIt is not truly a donation. In your case, the share of money given to the library is what is called your "cost of goods sold." This amount can be deducted on your schedule C. I truly agree that it is likely better from the library's point of view to have its own account rather than going through yours.
momtoabeautifuldaughter
·1 year agoNope, that already accounts as income for you and will be your responsibility at tax time.
I honestly hope that library wasn't taking advantage of your naivety about all this.
soh.maryl
·1 year agoIt seems like both the library and the OP were clueless as to how to do this. Doubt there was any nefarious intention on the part of the library.
It does need to be straightened out, however, because the OP is currently being recorded as being the actual seller of the materials.
mam98031
·1 year ago@luckylittlelibrary
NOT as a donation. For what you have already sold, make receipts that show what you PAID to the library and you acquisition cost of the product sold.
You will be fine. Don't let everyone scare you. You just need to restructure what you have been doing. Please see my post #13 on this thread.
meekamaye
·1 year agoSet up a non-profit account for the library or you are going to be paying all the taxes on the library sales.
soh.maryl
·1 year agoYou need to stop immediately. A selling account needs to be set up for sales for the library only. You may have to seek help from an accountant for this.
If the past sales have been under your account, are you aware that income is considered to be yours by the IRS at income tax time?