Business (?) Contribution

[RoseK]

Hi everyone,

When I went to ATX community with this question was when I found it gone so never got any ideas from you all. Has anyone dealt with contractors or interior decorators who did work at one of the charitable organization "Benefit Houses?" For anyone who doesn't understand what I am talking about. In our area in the "elite" area of town some owners of the to-die-for homes allows a charitable organization to hold fund raiser functions and host tours of the house AFTER a group of interior decorators and contactors have worked their magic on the house. After all the work is finished there all different benefit functions at the house and there are tours of the house for the public on some of the days. When all of this is done the owners of the house are left with their home decorated by the best in the area.

My problem that I am holding up finishing a return for starts with the client owning a business where he is the only member of the company who does artistic designs on walls using plaster and paints, glazes, etc. He also refinishes floors with designs with different woods and other flooring materialsl He was chosen to finish the walls in several rooms of the "______House". He was to present an invoice for his work so that it could be added to the brochure for the tours.

His bill was for "10,000, He worded the amounts as: Project totals: $10,000 - Donation total: 47500 - Total Due: $2500.

First, he was never paid the $2500 which he tought was supposed to be the owners of the house.

The "project manager" told him that he could deduct $500 on his BUSINESS tax return.

He thinks I should put the entire $10,000 on his Sch C, $7500 as a contribution and $2500 as a bad debt.

I don't know who told him he could deduct $500 but I can't find anything that says he could take anything other his out of pocket costs I was under the impression that you cannot take your services/time as a contribution on Sch A and don't remember anything about contributions on Sch. C. Has anyone dealt with these Benefit Houses and know the tax treatment for the "chosen few" who transform the homes into palaces. . I can't find anything in my reference books that talks about this. I really could use some input because I want to have a good way to convince my client of the outcome I think you all will give.

RoseK

[JohnH]

You are correct.

He can only deduct his out-of-pocket costs, and that's assuming he hasn't already deducted them as a business expense. It's hard to explain to some clients the problems with double counting & circular reasoning.

[Burke]

You are absolutely right. He can deduct ONLY his out-of-pocket actual expenses which have not already been deducted as "supplies" or other expense on his business return. And those go on Sche A, not on Sche C, and that's only if he can itemize. He cannot deduct as a bad debt anything he never received. It is lost income, but not for tax purposes as he never reported it or paid tax on it.

[GeneInAlabama]

He was to present an invoice for his work so that it could be added to the brochure for the tours.

Could he not deduct his actual expenses as advertising expense since he was listed in the brochures as one of the expert craftsmen working on the house? He did receive some benefit from the work he performed.

Gene

[GeneInAlabama]

He was to present an invoice for his work so that it could be added to the brochure for the tours.

Could he not deduct his actual expenses as advertising expense since he was listed in the brochures as one of the expert craftsmen working on the house? He did receive some benefit from the work he performed.

Gene

P.S. Assuming of course that he hasn't already deducted the expenses elsewhere.

Gene

[kcjenkins]

I agree, I would deduct the actual out-of-pocket expenses on the C, not the A, since he did this not to support any specific charity, but to get his business some publicity. But he certainly can not deduct anything except the actual costs.

KC