Anyone who gives money to a nonprofit organization and get a receipt can use this with their government revenue agency to reduce taxes owed. Basically, so people who give money get a tax break. This gives them an incentive.
IANAL and I have zero experience doing anything remotely like this.
But from my cursory reading of the IRS instructions on their website, doing this in the US specifically is more or less a two step process:
Form an organization by filing with your local state. Every state handles this process differently; in some (most?) this can be as straightforward as filling out a form, paying a processing fee on the order of $100 or so, and waiting for approval. Just don’t form an LLC in particular, as that complicates the next step.
Fill out Form 1023-EZ with the IRS. This requires proving your organization qualifies for tax exemption (it is not clear to me whether this would) and a filing fee of $275. Your org also cannot possess more than $250,000 of assets, cannot receive more than $50,000 of revenue from donations within the span of a year, and cannot be registered as an LLC. If you fail to meet these, you need to fill out the regular Form 1023, which I believe is more involved and has a more expensive filing fee.
If both of these forms are accepted, kapow! You are now a tax-exempt organization, and other corporations can charitably donate to your project for tax breaks. Just remember to do your station-keeping tasks like filing your annual company and tax exemption status renewals, reporting your earnings to the IRS, and sending receipts to donors.
Most open source developers don’t want to be messing about with non-profit admin tasks. This is why umbrella organisations like the Software Freedom Conservancy exist.
There is a long, long list of classifications they may put you in. I believe appointing one to you is their job, so you don’t get to pick. I read through all of these and couldn’t decide which of them really applies to, “I am building a FOSS app/library”.
There is a “scientific research” designation. Does that count? Well, if so, it says this:
Scientific research does not include activities of a type ordinarily carried on as an incident to commercial or industrial operations, as, for example, the ordinary testing or inspection of materials or products, or the designing or construction of equipment or buildings.
Is building software “designing or construction of equipment” that is “incident to commercial operations”?
Maybe it belongs under classification U41, which is Computer Science? Does building software count as “research” into comp sci for the benefit of the general public?
Maybe it’s W80, public utilities? I think that’s intended more for municipal utilities like electricity, water, gas, and sewer, not public software projects.
Those corporations just leech off the work of developers just like they do off the work of everyone else. The only difference is developers get it worse because at least the employees get something close to the minimum wage.
Neither? They’re in the part of the population that don’t live paycheck to paycheck and actually has a chance of retiring. The median software engineer salary is $120k in the US. The median household income is $74k. I think American software engineers are doing fine.
Getting the finance department to sign off on donating to an opensource project is night impossible. “So we can get this for free?” is the end of the discussion. I’ve tried :/
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Register your project as a non profit and provide a receipt upon donation and you’ll get more funding.
Why?
Anyone who gives money to a nonprofit organization and get a receipt can use this with their government revenue agency to reduce taxes owed. Basically, so people who give money get a tax break. This gives them an incentive.
Thanks for explanation
Can you register a project or do you need to make an organization?
IANAL and I have zero experience doing anything remotely like this.
But from my cursory reading of the IRS instructions on their website, doing this in the US specifically is more or less a two step process:
Form an organization by filing with your local state. Every state handles this process differently; in some (most?) this can be as straightforward as filling out a form, paying a processing fee on the order of $100 or so, and waiting for approval. Just don’t form an LLC in particular, as that complicates the next step.
Fill out Form 1023-EZ with the IRS. This requires proving your organization qualifies for tax exemption (it is not clear to me whether this would) and a filing fee of $275. Your org also cannot possess more than $250,000 of assets, cannot receive more than $50,000 of revenue from donations within the span of a year, and cannot be registered as an LLC. If you fail to meet these, you need to fill out the regular Form 1023, which I believe is more involved and has a more expensive filing fee.
If both of these forms are accepted, kapow! You are now a tax-exempt organization, and other corporations can charitably donate to your project for tax breaks. Just remember to do your station-keeping tasks like filing your annual company and tax exemption status renewals, reporting your earnings to the IRS, and sending receipts to donors.
Most open source developers don’t want to be messing about with non-profit admin tasks. This is why umbrella organisations like the Software Freedom Conservancy exist.
The next question is what qualifies for tax exemption. I feel like open source projects should be counted as services for public good
There is a long, long list of classifications they may put you in. I believe appointing one to you is their job, so you don’t get to pick. I read through all of these and couldn’t decide which of them really applies to, “I am building a FOSS app/library”.
There is a “scientific research” designation. Does that count? Well, if so, it says this:
Is building software “designing or construction of equipment” that is “incident to commercial operations”?
Maybe it belongs under classification U41, which is Computer Science? Does building software count as “research” into comp sci for the benefit of the general public?
Maybe it’s W80, public utilities? I think that’s intended more for municipal utilities like electricity, water, gas, and sewer, not public software projects.
I really have no clue. Here be dragons.
No idea. All I’m saying is if companies can save taxes by donating, they’ll have an incentive.
Having done the 501C3 dance in the US, its a LOT of work. That’s why there’s the Software Freedom Conservancy for projects that meet their criteria.
You got your coffee ;P
Those corporations just leech off the work of developers just like they do off the work of everyone else. The only difference is developers get it worse because at least the employees get something close to the minimum wage.
Software devs (in the US at least) make insane amounts of money.
“CEO golden parachute” insane? Or just “I can’t believe it’s past minimum wage!” “insane”?
Neither? They’re in the part of the population that don’t live paycheck to paycheck and actually has a chance of retiring. The median software engineer salary is $120k in the US. The median household income is $74k. I think American software engineers are doing fine.
Getting the finance department to sign off on donating to an opensource project is night impossible. “So we can get this for free?” is the end of the discussion. I’ve tried :/
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