Eric Posted June 12, 2007 Report Share Posted June 12, 2007 So here goes. I'm a computer nerd, not a tax geek, so this may be common sense to you guys. I'm working on a website, brand new from scratch, for a local hospital. They're a non-profit. I've been working on this site for more than 5 months. The project has grown far beyond what it started out as, and I'm not getting paid a lot for it. (I'm not sour about this, I just really want to be able to finish it before I go nuts.) My question is this: I've been (loosely) tracking my hours. They're paying me for the project, not hourly. If you figure my hourly rate multiplied by the time invested, the difference is roughly $2000 and growing by the day. Can I claim that difference somehow as a donation to the organization? EDIT: Please, no fancy tax talk, pretend you're talking to one of your clients. One of your "slow" clients. :P Quote Link to comment Share on other sites More sharing options...
redux Posted June 12, 2007 Report Share Posted June 12, 2007 So here goes. I'm a computer nerd, not a tax geek, so this may be common sense to you guys. I'm working on a website, brand new from scratch, for a local hospital. They're a non-profit. I've been working on this site for more than 5 months. The project has grown far beyond what it started out as, and I'm not getting paid a lot for it. (I'm not sour about this, I just really want to be able to finish it before I go nuts.) My question is this: I've been (loosely) tracking my hours. They're paying me for the project, not hourly. If you figure my hourly rate multiplied by the time invested, the difference is roughly $2000 and growing by the day. Can I claim that difference somehow as a donation to the organization? Well, you cam to the right place for tax questions. Unfortunately No! You may only deduct donations that are. lets say, tangible and things like mileage. Services are not deductible. Quote Link to comment Share on other sites More sharing options...
Pacun Posted June 12, 2007 Report Share Posted June 12, 2007 The simple answer is no. Sorry. You wanted a simple answer. Quote Link to comment Share on other sites More sharing options...
Eric Posted June 12, 2007 Author Report Share Posted June 12, 2007 So saying I'm donating computer software worth $2000 is not correct? When I say computer software, I mean the chunk of code that is their online bill pay system, for example. Quote Link to comment Share on other sites More sharing options...
redux Posted June 12, 2007 Report Share Posted June 12, 2007 So saying I'm donating computer software worth $2000 is not correct? When I say computer software, I mean the chunk of code that is their online bill pay system, for example. If you're donating a physical program that you wrote, that is tangible and would likely not be challenged as a legitimate donation. The way you first posed the question was that you wanted to donate your time and deduct it. Quote Link to comment Share on other sites More sharing options...
Pacun Posted June 12, 2007 Report Share Posted June 12, 2007 Even if you donate a program that's worth $2,000, if you made the program with your time and effort, no deduction. Quote Link to comment Share on other sites More sharing options...
JohnH Posted June 12, 2007 Report Share Posted June 12, 2007 You might also want to think of this in the sense that you have ALREADY taken a tax deduction by not billing them. If you billed them $2,000 and then donated the money back to them after the bill was paid, you'd be in exactly the same position as you are by not billing them. (Except for the fact that you would have paid Self-Employment tax on the $2,000 of income as it passed through your hands). BTW, thanks very much for all the time you've donated to create this forum in the same spirit that you have been helping the hospital. Quote Link to comment Share on other sites More sharing options...
redux Posted June 12, 2007 Report Share Posted June 12, 2007 Even if you donate a program that's worth $2,000, if you made the program with your time and effort, no deduction. That's where to debate would begin, I guess. Suppose you design and build a lawnmower, or any such device and you donate it to some non-profit...is that not deductible as far as its FMV is concerned? Quote Link to comment Share on other sites More sharing options...
Pacun Posted June 12, 2007 Report Share Posted June 12, 2007 "Suppose you design and build a lawnmower, or any such device and you donate it to some non-profit...is that not deductible as far as its FMV is concerned?" If I build a Lawnmower with my own efforts, I build the metal and the engine, paint it, test it, no FMV, my basis would be zero and no deduction. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 12, 2007 Report Share Posted June 12, 2007 That's where to debate would begin, I guess. Suppose you design and build a lawnmower, or any such device and you donate it to some non-profit...is that not deductible as far as its FMV is concerned? No, actually, it's only the actual cost you have in the lawn mower that you can deduct, not it's FMV. The difference is your profit, which you can only deduct if you first report it as profit and pay taxes on it. In Eric's case, he is putting his time and knowledge into his 'product', but he can not deduct it because he has no 'cost' in it. He can, however, feel real good about doing such a fine thing for them. It's just like the farmer who raised a calf until it was ready to go to the sale barn, worth say $500, and the day before he's going to take it to the sale, the calf dies. He has no 'loss' to write off, because he has deducted all his costs as he went, feed, vet, supplies, depreciation on the cow and bull, etc. He merely has a lack of income, which, had he gotten it he would have had taxes owed on it. Quote Link to comment Share on other sites More sharing options...
JohnH Posted June 12, 2007 Report Share Posted June 12, 2007 KC: The process is a little tricky, but he could still make money on it by holding a "Calf Lottery". If he sells 50 tickets at $10 each, he will clear $490 after expenses. Quote Link to comment Share on other sites More sharing options...
redux Posted June 12, 2007 Report Share Posted June 12, 2007 KC: The process is a little tricky, but he could still make money on it by holding a "Calf Lottery". If he sells 50 tickets at $10 each, he will clear $490 after expenses. Ok, throw this around. If ERC sells the program to the non-p at full price and later donates an amount equal to the difference that he asked about, he would have SE tax to pay on the full amount - but would likely be entitled to a deduction for the donation of cash. (with the appropriate proof, of course.) Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 12, 2007 Report Share Posted June 12, 2007 Yes, of course, if he charged them more then donated the extra, he would be able to take a charitable deduction, but he'd also owe tax on the income, and SE tax as well. So he'd be worse off by doing that. Why would he want to do that? What he can do is to deduct any mileage he might have while doing the work. But odds are he's already doing that, anyway. Quote Link to comment Share on other sites More sharing options...
Pacun Posted June 12, 2007 Report Share Posted June 12, 2007 If your client has to pay SE taxes on the donation, why bother? Quote Link to comment Share on other sites More sharing options...
Lion EA Posted June 12, 2007 Report Share Posted June 12, 2007 And, don't forget that charitible mileage is a lower rate than business mileage... Quote Link to comment Share on other sites More sharing options...
redux Posted June 12, 2007 Report Share Posted June 12, 2007 So he'd be worse off by doing that. Why would he want to do that? What he can do is to deduct any mileage he might have while doing the work. But odds are he's already doing that, anyway. We don't know that he would be worse off with just this income amount known. It would depend on his "Other" income...his itemized deductions, if he has enough to exceed the standard. If he exceeds the standard by a substantial amount, then the $2,000 becomes significant in reducing his "taxable income" and the $283 SE tax on the $2,000 would still give him a net savings of $1,717. Moreover, while we're talking about insignificant mileage amounts, the cost of the disk would be deductible. So without knowing ALL of his annual details, it would be difficult to answer his question, except to repeat that his services are NOT deductible. Quote Link to comment Share on other sites More sharing options...
Pacun Posted June 12, 2007 Report Share Posted June 12, 2007 "We don't know that he would be worse off with just this income amount known. It would depend on his "Other" income...his itemized deductions, if he has enough to exceed the standard. If he exceeds the standard by a substantial amount, then the $2,000 becomes significant in reducing his "taxable income" and the $283 SE tax on the $2,000 would still give him a net savings of $1,717. Moreover, while we're talking about insignificant mileage amounts, the cost of the disk would be deductible. So without knowing ALL of his annual details, it would be difficult to answer his question, except to repeat that his services are NOT deductible." You are completely wrong and thinking like my clients... They think that if they donate $5000, the IRS will refund them $5,000. Sometimes they are married filing jointly and the $5,000 donation is the only itemized deduction they have. I tell them "the $5,000 donation will benefit you... ZERO". The only time you will benefit by reporting $2,000 on Schedule C and deducting $2,000 on donations on Schedule A is... if you need to increase your SE income for retirement plans or you need additional income in order to get SS credits. Keep in mind that your salary is increased by $2,000 and then it is reduced by $2,000... leaving you with the same taxable income at the federal level but you have to pay $283 on SE taxes. Quote Link to comment Share on other sites More sharing options...
JohnH Posted June 12, 2007 Report Share Posted June 12, 2007 Pacun: ---> You are completely wrong and thinking like my clients... They think that if they donate $5000, the IRS will refund them $5,000. <---- So YOU'RE the one who's been stealing my clients. I was wondering where they went... Quote Link to comment Share on other sites More sharing options...
Pacun Posted June 12, 2007 Report Share Posted June 12, 2007 Pacun: ---> You are completely wrong and thinking like my clients... They think that if they donate $5000, the IRS will refund them $5,000. <---- So YOU'RE the one who's been stealing my clients. I was wondering where they went... You are right, they come to me and they said "John said that I will get a big refund" lol. Quote Link to comment Share on other sites More sharing options...
redux Posted June 12, 2007 Report Share Posted June 12, 2007 "We don't know that he would be worse off with just this income amount known. It would depend on his "Other" income...his itemized deductions, if he has enough to exceed the standard. If he exceeds the standard by a substantial amount, then the $2,000 becomes significant in reducing his "taxable income" and the $283 SE tax on the $2,000 would still give him a net savings of $1,717. Moreover, while we're talking about insignificant mileage amounts, the cost of the disk would be deductible. So without knowing ALL of his annual details, it would be difficult to answer his question, except to repeat that his services are NOT deductible." You are completely wrong and thinking like my clients... They think that if they donate $5000, the IRS will refund them $5,000. Sometimes they are married filing jointly and the $5,000 donation is the only itemized deduction they have. I tell them "the $5,000 donation will benefit you... ZERO". The only time you will benefit by reporting $2,000 on Schedule C and deducting $2,000 on donations on Schedule A is... if you need to increase your SE income for retirement plans or you need additional income in order to get SS credits. Keep in mind that your salary is increased by $2,000 and then it is reduced by $2,000... leaving you with the same taxable income at the federal level but you have to pay $283 on SE taxes. First of all I’m not sure any of us have the ability to detect exactly how someone else is thinking. If you can, that's a skill you should hone. Now, let me say, you're completely wrong in what you said. I neither said nor did I mean that such a donation will result in an equivalent refund. Yes, no question that the income will increase by $2,000, BUT if the conditions are right that can be nullified by an opposite and equal deduction in taxable income. Leaving him with the same taxable income as though he didn't have the additional income, just as you said. Yes, I was wrong, his “net savings” is larger than I first said. He must pay $283 SE tax, (half of which is deductible from his income to arrive at AGI – Line 27), so he actually deducted $2,142 from Income to arrive at a taxable income. Therefore, $2,142 - $283 = a “net savings” of $1,859 in taxable income at whatever tax rate he may be in. Contributing to one’s future by adding to your SS account is not ever a bad thing in my mind. Even small amounts such as $283 can ultimately be beneficial. Stick a fork in me, I'm done! Quote Link to comment Share on other sites More sharing options...
mcb39 Posted June 13, 2007 Report Share Posted June 13, 2007 Poor Eric's head has to be spinning if he read this entire thread as I just did after a long hard day of work. He might want to stick a fork in all of you as he asked for a "simple" answer; which is NO, unless something material is involved and he is receiving no benefit from it.... Quote Link to comment Share on other sites More sharing options...
Eric Posted June 13, 2007 Author Report Share Posted June 13, 2007 Haha well thanks for the information. I don't really have a business for doing this stuff on the side, I just somehow get roped into doing these things. I've never itemized before, filed a Sch C, etc etc etc, although I may attempt to do that this year. And if I do decide to make an effort to file more than my usual very basic tax return, I'm going to pay someone else to do it for sure. Especially after reading this thread. Idunno how you people do it. Quote Link to comment Share on other sites More sharing options...
Pacun Posted June 13, 2007 Report Share Posted June 13, 2007 ERC, When preparing your own retur, anyone of us will tell you what exactly to do. You do not have to tells us the exact figures just ask. Also a lot of us will do your return for free, afterall you are not pay for your valuable service on this forum. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted June 13, 2007 Report Share Posted June 13, 2007 ERC, When preparing your own retur, anyone of us will tell you what exactly to do. You do not have to tells us the exact figures just ask. Also a lot of us will do your return for free, afterall you are not pay for your valuable service on this forum. Ditto here. Just say the word and I would gladly do your return, for no charge, to help repay you for your efforts here, because this forum has huge value to me, and many other preparers. Consider it my part to help this forum. Please keep up the good work. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 13, 2007 Report Share Posted June 13, 2007 Eric, I'd be happy, also, to review your return for you, or just to do it for you myself. If you want me to, you know how to send it to me. KC Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.