Donations and the IRS

[KellyDunn]

Self serving. Lets see. I turn for a living. I get asked to donate work at least every other week. Some of the causes I believe in. So If I give a gift cert. worth $200 towards a piece of my work I do not get to find out a piece of mine worth many hundreds went for 30 bucks. Altruism is I am giving up 200 bucks on a piece. The charity made money. In this economy I am my own favorite charity. i have stopped almost all cash charitable contrubutions as quite frankly I need the money. Some may think being a full time turner means you sit back and watch your stock portfolio get larger. So maybe its also my Scotch, Irish, Jewish, Feringi nature. But I help when I like the cause.

 

[Bill Boehme]

Brian, I won't dispute your numbers, but I think that the "average" percentage that is paid on federal income tax returns is somewhere in the low twenty percent range.

Anyway, I think that the OP has gotten the answer that he might be disappointed to learn, but his CPA is correct.

 

[Bill Boehme]

Self serving. Lets see. I turn for a living. I get asked to donate work at least every other week. Some of the causes I believe in. So If I give a gift cert. worth $200 towards a piece of my work I do not get to find out a piece of mine worth many hundreds went for 30 bucks. Altruism is I am giving up 200 bucks on a piece. The charity made money. In this economy I am my own favorite charity. i have stopped almost all cash charitable contrubutions as quite frankly I need the money. Some may think being a full time turner means you sit back and watch your stock portfolio get larger. So maybe its also my Scotch, Irish, Jewish, Feringi nature. But I help when I like the cause.

Fair enough.

Just wondering though, since you are "giving up 200 bucks", would you consider an alternate approach to supporting the charity of simply writing them a check for 200 bucks given that the end result is the same ... or is it?

 

[Dale Gillaspy]

Interesting

Quite interesting indeed. A friend of mine is a concert pianist, and he has played for charity. He writes off his usual performance fee. No real materials involved. Somewhat of a parallel situation, but a different set of rules.

 

[Thomas Stegall]

Bill,

In Kelly"s case it would not be the same thing. The gift certificate would only be redeamed or have value in the event of the winner making a purchase (which generates a sale for kelly). And as he mentioned, avoids him giving away an expensive piece that is then undervalued in an auction. In the case of simply writing a check, kelly then gives $200 with no return, whereas the certificate may generate a purchase with a reduced amount of proffit.

 

[Marvin Hasenak]

Quite interesting indeed. A friend of mine is a concert pianist, and he has played for charity. He writes off his usual performance fee. No real materials involved. Somewhat of a parallel situation, but a different set of rules.

I spent 18 years trying to defend clients with creative accounting practices. Your friend may have done it for years, but he is wrong.

It was stuff like this that made me finally quit and find another profession. I got fed up with the whining after they had to pay the IRS.

 

[Marvin Hasenak]

Bill,

In Kelly"s case it would not be the same thing. The gift certificate would only be redeamed or have value in the event of the winner making a purchase (which generates a sale for kelly). And as he mentioned, avoids him giving away an expensive piece that is then undervalued in an auction. In the case of simply writing a check, kelly then gives $200 with no return, whereas the certificate may generate a purchase with a reduced amount of proffit.

The gift certificate has no cost basis in Dunn's tax return. He will have already wrote off the cost of the materials and the depreciation on his equipment. His time has not been included in income therefore is not deductible as a charitable deduction. In other words he has taken his deductions, the gift certificate value as a deduction is zero. If he accepts the gift certificate and then includes it in income he will have deduction, because he included the value of his time, the $200, in his income. But it is a washout, $200 in and $200 out.

In other words, an artist doesn't get a deduction if he has already deducted his expenses. His labor time is not an expense unless he has included it in his gross receipts, which is a poor accounting practice.

You can almost bet this thread has been read by at least one Internal Revenue Service agent. I bet he is chomping at the bit find a few of these tax returns, they will be the easiest work he has had in a long time.

One last piece of advice, get competent tax advice, key word competent. Regardless of who prepares your tax return you are ultimately responsible for your tax return. And tell them EVERYTHING, and the TRUTH, because all they have is your word. The IRS wants proof when you are audited.

 

[Owen Lowe]

...His time has not been included in income therefore is not deductible as a charitable deduction. In other words he has taken his deductions, the gift certificate value as a deduction is zero. If he accepts the gift certificate and then includes it in income he will have deduction, because he included the value of his time, the $200, in his income. But it is a washout, $200 in and $200 out.

I'm not arguing or picking nits. I hope to only add to the discussion.

So, time and skill is only worth something as an income entry (when you sell something) - it has zero value as a donation.

What types of expenses can a company write off when it donates an item it makes (let's say, Ford donates a Ford Focus to the AAW)? Are they only able to write off raw materials or does employee time and skill that went into making the components and assembling the entire auto get included? At that, is it MSRP or actual cost of each unit?

Granted, this is all an academic exercise.

 

[Marvin Hasenak]

Only the actual expenses paid by Ford are deductible, not the fair market value.

 

[Owen Lowe]

Only the actual expenses paid by Ford are deductible, not the fair market value.

Thanks Marvin,
Are you saying the expense of the labor is deductible?

 

[hockenbery]

I think ford can deduct labor costs paid to the auto workers.
It is part of what the car costs Ford.
If an artist pays someone to cut wood , do the turning, do the sanding etc those paid labor cost would be deductible.

If the Ford auto workers donate their time to make a car as a group project, the labor would not be deductible.

Key word in your question was "expense"... C

Al

 

[Bill Boehme]

If I had some creative ideas about ways to lower my taxes and my CPA nixed those idea, I would listen to him since I believe that he knows what he is talking about -- that is the reason that I use his services. I am pretty sure that I would not "go over his head" by asking my woodturning friends, fellow club members, or get online to gather "opinions" from even more woodturners on the subject.

 

[Brian McInturff]

It is fun to read though. My brother, who use to work for the IRS, has told me some really funny things people do and excuses people give.
Hopefully one day our tax structure will be revamped and simplified. But until then...

 

[KellyDunn]

Bill, dont forget that I am my own best charity. I dont have the 200 to write that check. The gift cert has no cash value. If they use it for a piece under $200 fine. No change. So far the buyers know who I am and have been thrilled to get a $200 discount. There is no income. Between the gallery and myself we lost $200 in income. Unless the charity tells me what it sold for I have no idea. And I dont recall one telling me. And no buyer has told me what they paid for it. I just know when redeemed I gave away $200. Thats how I see it anyway. I get a note on a monthy statement if one has been redeemed. The gallery puts the whole thing on me as they just gave the discount. The minus $200 is in my records.
The older I get the more confused I can get when doing my taxes. I have to pull out several years to see what went where. And then I have to see if the new forms have been changed. Read any new changes to small business deductions. Everytime I have been called on something it was my mistake. Knock on wood its been easy to take care of. Mostly its me not triple checking math. So you get the IRS letter which is instant fanny puckering. You go through what they say and pull out all the forms and hit the calculator hoping they are wrong. You make notes for next year. Raise the amount you need to pay in estimated tax. Sigh, and put it all back in the file.

 

[Bill Boehme]

So far, my won - loss record is 1 - 0 with the IRS, but it still draws the pucker string pretty tight to see a letter saying that I owed about twice my income in taxes and please send it in within the next 30 days. And, why iss it that letters like this come at the start of a weekend so that you get to panic until the following week to get things cleared up. All that I got from them in reply was a letter saying "disregard the previous letter". No apology, no flowers.

 

[KellyDunn]

Bill, Like you I did not even even get kissed. At least these days unlike the 70s there is a thing stating if you disagree with our findings. Then they give you info to state your case. But some of us older folks recall when the notice said pay now or not only face an audit but prison time. So no wonder some of us get excited. Its hard to forget the old gestapo tactics.
I am one of just a few full time turners out there in the world. John Jordan said recently he got into this for the groupies, fast cars and big houses. Made me laugh and I thanked him for it.
But to be straight forward in this I am kind of old school in that I fear the IRS because of past experience. So I dont take undo chances. If I am wrong in a deduction I make it square. But even the supreme court says a person does not have to pay more taxes than he has to. So you look at all legal ways to lower your tax obligation. I do think thats why this thread was started.

 

[Brian McInturff]

As is the case with most things in this world. It's all about the wording and terminology you use to describe your deductions.

 

[Bill Boehme]

... John Jordan said recently he got into this for the groupies, fast cars and big houses. Made me laugh and I thanked him for it.

I thought it was fancy cars and fast women or is it the other way round?