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Ways Through the Maze: A Tax Guide for Indies

Indie Interests
 September 2009
 
Last month I spoke at the Creative Freelancer Conference. The questions that abounded at the breakfast roundtable and in the halls were mostly about LLCs and donating time or services.
 
The June 2009 issue of MAZE told you about LLCs. This month I fill you in on the benefits of being a good guy.
 
June Walker
June Walker
Consultant to Indies

June's Blog
What's an Indie?
Whether you call yourself a
1099 Worker
Sole Proprietor
Freelancer
Subcontractor
Free Agent
or
Self-employed
 you are an
independent professional.

The IRS classifies you as an independent contractor.

I call you an indie.

Tax Solutions for Creatives

Tax Solutions for Creatives: An Audio CD
 
Basics for the Visual Artist
An Audio CD
by
June Walker

1. Introduction
2. Self-employed in Business 
3. Three Ways to Deductions 
Listen
4. Expenses in General
5. Office-in-the-Home
6. Auto & Transportation
7. Travel or Transportation
8. Meals & Entertainment
9. Income
10. Taxes  
11. Recordkeeping
12. A Final Caution
June's Book
Self-employed Tax Solutions 
The Why of 
Ways Through the Maze

To guide indies to a more simple and secure tax life. 

To promote indie-business self-confidence.  

To humanize tax issues with glimpses into the lives and concerns of self-employed people. 

Each issue will include events and Q&As that come out of real-life situations of indies who have visited my blog or my website.  

You'll learn clear and simple solutions to complicated situations about income, expenses, recordkeeping, indie pensions, and being self-employed

From time to time I'll also announce indie happenings of interest to you.

Please tell your colleagues and fellow indies about 
Ways Through the Maze
Join The Mailing List 
 
No Deduction for Donated Work or Services
Dear June,

I'm doing some freelance consulting work for a nonprofit organization. The work has gone over budget and they cannot afford to pay me to finish the work. They offered to count the value of my work as a tax deductible donation. Is this Kosher and how do I handle it?

Ken, Graphic Designer in Massachusetts


Dear Ken:

You cannot claim a tax deduction for time or services donated to a charitable organization.

If you drop ten dollars into the collection basket at church: A deduction. If you donate your worn shoes to the Helping Hands Youth Shelter: A deduction. If you give 40 hours of your time "valued at $100 per hour" to the AIDS Walk, designing the advertising and promotional material: No deduction.

Only money or goods given to a recognized charity will result in a deductible charitable contribution. There's no way that the non-profit can credit you with a donation.You may think that's unfair. Whether you're justified to think that or not, here's how the IRS looks at it. If you give $10 to a charity, someone -- you or someone else -- earned the money before it was donated. If you purchased a $100 pair of shoes, somebody earned the money to buy the shoes. If you could have sold those old shoes at a thrift shop for $5 but instead donated them to a charity, you are entitled to a $5 charitable deduction on your tax return. But, you can't give away something you never had. And if you don't receive a fee, well then you never had the paid fee to give away.

Some non-profit organizations encourage people to donate services, assuring them that it is a tax-deductible donation. But services -- another word for your time -- are not deductible as a charitable contribution. Out-of-pocket expenses that you incur -- such as supplies, telephone, transportation costs -- can be deducted.

I encourage you to give as much time and service to charity as you can. Doing so does create benefits but not in the form of a tax reduction.

By the way, self-employed people who file Federal Schedule C cannot take business-related charitable contributions as a business expense. For sole proprietors these are personal deductions and are deducted on Schedule A.

Spread goodwill.
June
Cost or fair-market value? 
It's out of the goodness of your heart.
Hi June,

Got a twist on the question re taking a donation for charitable services.

I get why time isn't deductible. However, I recently coded a website, created some training materials and did a training for a non-profit (getting just a fraction of my usual rate - and donating the rest).

Don't those things quality as Patents and Other Intellectual Property as per IRS Pub 526 w/ lists: Know How and Software? I'll be asking the IRS as well - but thought you'd like to mull on that. I'd be interested in your thoughts.

Thanks,
Max


Hi Max,

First let me direct those reading this to my posts about donated services.

And, on your question, nothing to mull. What you missed in Pub 526 in that same section is:
"If you donate a patent or other intellectual property to a qualified organization, your deduction is limited to the basis of the property or the fair market value of the property, whichever is less."

Fair market value means what you could sell something for. You do a chalk drawing of your house. Somebody wants to buy the drawing for $20.00. The drawing's fair market value is $20.00.

Basis is your cost. If you drew that picture on a piece of paper that cost 50 cents and you used 50 cents worth of chalk, then your cost basis is $1.00.

If you donated that drawing to a charity your deduction would be $1.00. Your cost.

Same applies to a website you designed or if you cut the grass for the local community center. You get to deduct only your cost.

Best,
June
 
 
Want more expense deductions?