Ann M. Fisher, CPA, from Stiles, Carter and Associates, PSC, explained in a phone interview that for non-cash contributions, the lesser ocf fair market value or materials cost is the allowable deduction. The only time the market value can be deducted is if the work was sold to a customer. The customer can then deduct the price of the sale, though depending on the object and its appreciated value, the item might need to be appraised in order to take the fair market value as a deduction. Some people try to get around this by having a spouse or partner buy the item to donate it. Fisher says that this is a “gray area” and said, “Even if a spouse bought the item and donated it to try to take a deduction, the maker would still have to pay sales, income and self-employment tax,” which may not make fiscal sense.
Donated time is also generally not deductible. The IRS separates time into non-GAAP Volunteer Services and GAAP Volunteer Services. GAAP means “generally accepted accounting principles.” Non-GAAP Volunteer Services is when an individual donates his time and services. GAAP Volunteer Services is when pro-bono professional services are offered to a charity. Financial website The Balance explains, “The big difference between GAAP services that may qualify as pro bono services and non-GAAP volunteer services is that pro bono services are typically offered as professional services. An individual, business, or organization would ordinarily have to pay the donor for this work.” But even though the organization would usually have to pay for this service, the person providing the service gratis still does not get to write the value off from the taxes.
The Balance explains, “For the most part, you cannot deduct fees you would normally charge for your services as pro bono services, but you may be able to take deductions for certain qualifying expenses on your income tax return. For example, if you charge $150 an hour for your services, that does not necessarily mean if you donate two hours of your professional time that you can then turn around and deduct $300 from your income taxes.”
But expenses an individual incurs during a time donation (mileage, parking fees, etc.) can be deducted. Fisher said that mileage taken for charitable volunteering should be recorded as that on tax returns and taken at the volunteering allotted mileage rate, which was 14 cents per mile for 2017, not even half of the allowable business mile allocation. And she said that travel cost deductions are allowable as long as no personal benefits were derived from the charitable travel (or if it was, there’s a calculation allowed based on an allocation of days doing the charity’s work.) “The mileage and travel expenses are not deductible if the charity reimburses you for them,” Fisher said.
Another deduction could include value from a gift of donated time, for example donating to teach a class or private lessons to be auctioned at a charity fundraiser. For more on this check out page 6, Contributions You Can’t Deduct from the IRS document Charitable Contributions or consult your tax preparation professional.
If you’re asked to do pro bono work, for example teaching an arts or crafts class for a community group or a child’s school, you may want to ask the charity to pay you for your time with the agreement that you will donate the money back to the charity. Fisher said you will need to pay the taxes and claim the income, but you can deduct 100 percent of the money given back to the charity as a charitable donation.
The lack of deductions for all of an artist’s hard work, time and skill is one reason why many makers believe that donating money or a portion of their profits is the best way to support a charity and find a benefit when filing taxes. Or as Abby Glassenberg, co-founder of Craft Industry Alliance, writes on her blog: “If you think about it, what charities need most is dedicated people and people cost money. A cash donation worth the cost of the yarn it would have taken you to knit a hat is more valuable to a charity than the hat itself.”
Pennsylvania teenager Rebecca Roth, of Rebecca Roth Designs, learned this early on as she started sewing and making things while in the seventh grade. In 2015 she began selling her infinity scarves on Instagram and on Josie’s Friends. “It’s an online consignment store that uses a portion of their proceeds to sponsor impoverished children worldwide. I donate 33 percent of my profits to the sponsored children,” Roth said. She also has donated 10 percent of her total sales profits to the ASPCA in past years. Roth is committed to not only using sales to help fund her future endeavors, such as college, but also to support her community and projects about which she feels passionate. She has learned that what works best for her from a tax donation and future sales perspective is donating money and part of her profits to charity, and gifting finished products to celebrities, such as Laura Dreyfuss and Emma Stone, who have both been photographed wearing Rebecca Roth Designs scarves.
One last charity-related deduction that Fisher suggested checking into is sponsorship of a charitable event. While this would be a business deduction (like advertising) and not a charitable deduction, it can be a way for you to support a charity and promote your business at the same time.
While charitable giving is a worthwhile endeavor, its important to get clear on how its handled from a tax perspective so you don’t encounter any unwelcome surprises. Consulting with a tax expert is the best way to learn about your options so you can make smart decisions for your business.
Jill L. Ferguson
Jill is the author of ten books, an artist, editor, entrepreneur and consultant. She is the founder of Women's Wellness Weekends (www.womenswellnessweekends.
I have made several quilts that I will be donating this year. The quilts are new. I do not have any receipts for the fabric, thread, etc. Are these receipts required by the IRS?
Hi, We don’t give official tax advice, but as the creator of the art the only thing you can donate is the cost of your materials. You do need to substantiate your costs with receipts. Without the receipts, you can’t take a deduction. Definitely ask an accountant for further help.
I make and donate, baby hats and mittens to my local hospital. Do I need their tax ID number to claim the materials that I use? Or is the name of the hospital and the location sufficient?