college fund idea questions

[jwknecht]

college fund idea questions

...Please remember to register, and while you're at it, browse some of the advertisers on my site. Registering helps my son, Jacob, because any donations go into his college account, and advertising click-throughs help me keep the site up and running. Please spread the word if you like this stuff!

OK Alex, I have a question. I am thinking to copycat you on the college fund thing (not on API... I don't share your talent in that area... mine is for design services). I have two kids to help put through college. Have you looked into the tax shelter legalities of this? If so, what words of wisdom can you share? Obviously if I can get donations to the kids college funds (which they will need anyway), I am thinking that is much better than showing income on the business. I know that you can't offer legal advice... but can you share what you know?

 

[alexfranke]

Well, unfortunately (for Jacob, I guess) there hasn't been enough donation activity to look into this too much. Jacob isn't a charity, so the people that contribute don't see much of a tax benefit. The donations I do get are moved into his college savings account and I'll end up paying taxes on those, unless I discover a way around it. Here's what I'm doing to help track it all:

* I use PayPal, which handles secure credit card and PayPal transactions (for a fee, which is why donations under about $2 don't result in much).
* PayPal allows you to pretty easily set up "donation buttons" on your site -- you attach a product id to the button and PayPal will track which transactions are associated with which "product".
* In my case, I have a general "college fund" product that's not associated with any real product (like software) and is for people who are just feeling generous. (Nobody has used it. :cry: ) I also have product codes for each software application, so using PayPal's reports I can easily quantify which dollars are marked for his account. I figure this 3rd party reporting will also be helpful if I can find a way to not pay income taxes on it.

You've probably already looked into these things, but there are a lot of savings plans out there -- I'd recommend checking out http://www.savingforcollege.com/ for some great state-by-state details on 529 plans. Some states allow you to write off contributions from state income tax (though I think I saw you were in TN, which means you probably don't pay state tax in the first place!)

I call it CollegeFundware because that's really what it's for -- It's not my "real job", but I don't think the IRS cares about that... It's still income.

In any case, let me know if you discover any ways to avoid the added income tax! It furstrates me when I think about how many times the same dollar gets taxed, so I'm always looking for loopholes! =)

Cheers,
Alex