Talk:Time Contributed to a Non-Profit Organization
From TaxAlmanac
Time Contributed to a non-profit organization
I spend 20 plus hours work for a non-profit organization. Will this be tax deductible?
Let us say my firm (single member LLC) spends 20+ hours for that non-profit organization. Can this be tax deductible? Thanks
[| Pub 526] has some helpful information on deducting the value of your time. Toby Joplin 10:39, 26 May 2005 (CDT) ----
Thanks Toby.
It seems like Pub 526 said "not deductible" to my question. What if my firm bill this non-profit organization? Then ... ... There got to be a way to deduct this contribution. Did anybody know how?
If your firm bills the non-profit then it will be income to the firm. Assuming you are the only owner and a soleproprietor then your income tax liability will almost be a wash if you already itemize and none of the itemized deductions are dependent on AGI. Could be other consequences out there for income tax purposes depending on individual circumstances. You will lose out though in the area of self-employment tax. If you are an S-corp it can be more of a wash all the way around. Again, it depends on your individual circumstances. I prefer to advise people to "exchange checks" with the non-profit organization if they want a tax deduction. Hope this helps. --Gregg Gillaspy, CPA, CFP 21:29, 27 May 2005 (CDT)
Gregg, thanks a lot for your analysis. Could you please explain a little more about exchange checks?
I think what he's suggesting is that the nonprofit write you a check for, say, $10,000 - that's income for you. You write a check to the nonprofit for $10,000 - that's a deduction for you. Net effect on your bank account and the nonprofit's bank account is zero after the checks clear.
I don't think it's a good idea, because you're going to have to pay SE tax on the $10K, and the deduction isn't worth as much as never receiving the income in the first place. Adding the $10K to your AGI and then taking it back out as an itemized deduction puts you $10K closer to the various AGI-dependent phaseouts such as IRA contributions, child tax credit, 2% misc deductions, and so forth.
The only advantage I can see is that it inflates gross income for both you and the nonprofit - which might help you if you're trying to look like big organizations, but I think it's essentially dishonest and also not a good idea.
The general rule, so far as I know, is that donated time is not deductible.
I just now saw the original person posting asked for clarification on exchanging checks. Greg Broiles is correct in explaining above. The circumstances where I advise to go ahead and exchange checks is when someone doesn't want to walk away from deducting their "time", doesn't understand my explaination or just thinks they are getting denied a charitable contribution. One way to avoid S/E tax is if a taxpayer is making it out of an S-corp rather than a partnership or as a sole proprietor. Driving up AGI is definitely a result. It keeps the books straight and helps to keep taxpayers and non-profit organizations out of trouble with the IRS for improper deductions. All in all, it is best to look at it on a case by case basis considering the desires, sophistication, financial circumstances, etc. of all those involved. Great to see you Greg Broiles contributing to this website after seeing you on a couple email listservs out there!
--Gregg Gillaspy, CPA, CFP 06:17, 16 Jun 2005 (CDT)
