I asked a CPA about this idea a couple months ago and was told that it doesn’t work that way, and everything I can find on the internet backs that up. Can you provide a source saying otherwise?
I’m gonna agree with you. If OP gets audited, this will not hold up. OP cannot deduct money for a service that the charity pays nothing for. Only unreimbursed or out of pocket expenses can be deducted this way
The IRS actually already did look it over. They decided (rather arbitrarily) that the script I donated was worth ~50,000 instead of ~70,000 as I was trying to claim. Definitely not a full audit, but they already reviewed it at some level and it passed muster.
Right because you’re donating intellectual property which is property. And that distinction is fucking nonsense but here we are. I doubt a full audit would allow market prices to survive on that though. They’d be like “hey now, this didn’t cost you that.” But to do a full audit we’d actually have to fund the IRS. Good luck getting that to happen.
They’d be like “hey now, this didn’t cost you that.”
But would not that depend on how OP’s time is valued in this case? OP could argue that their expertise costs $14000/hour ($70000 over 5 hours). I am sure that they would argue the hour cost, I have not clue how the IRS handles something like this.
As I understand it, technically the “thing of value” is the script itself - because it doesn’t have a clearly defined value you can get away with claiming some fairly crazy valuations.
There’s a very similar tax loophole popular with the wealthy where you get a “great deal” on some slightly valuable art, donate it to charity, get it valued by an “expert” you know, who just happens to think it’s worth many times what you paid, then write that off on your taxes. Basically free money.
Do you know if this expert has to have some kind of credentials? Or could John Smith start a non-profit, Jenny Smithy have James Smithens who is an “expert” say the value (of some object) is more than Jenny owns, have Jenny donate this object to John’s non-profit and then tax $0?
(I know it technically can be done, but do you know if there is some threshold were it will be flagged? Writing of more than you own would be a flag and call for an audit but what about something worth $1000?)
They don’t let you deduct the cost of your own labor ever. The property thing is the loophole (but after further research not a real loophole and they will nail you for it).
But my point is technically you can deduct the cost of the product. Lets say you knitted an Afghan that you can sell on Etsy and donated it to someone. You can only technically deduct the cost of the yarn, but you’re getting away with doing the market value thing. Full audit would nail you for it but the IRS isn’t staffed enough to call you in for one of those.
I asked a CPA about this idea a couple months ago and was told that it doesn’t work that way, and everything I can find on the internet backs that up. Can you provide a source saying otherwise?
I’m gonna agree with you. If OP gets audited, this will not hold up. OP cannot deduct money for a service that the charity pays nothing for. Only unreimbursed or out of pocket expenses can be deducted this way
The IRS actually already did look it over. They decided (rather arbitrarily) that the script I donated was worth ~50,000 instead of ~70,000 as I was trying to claim. Definitely not a full audit, but they already reviewed it at some level and it passed muster.
Right because you’re donating intellectual property which is property. And that distinction is fucking nonsense but here we are. I doubt a full audit would allow market prices to survive on that though. They’d be like “hey now, this didn’t cost you that.” But to do a full audit we’d actually have to fund the IRS. Good luck getting that to happen.
But would not that depend on how OP’s time is valued in this case? OP could argue that their expertise costs $14000/hour ($70000 over 5 hours). I am sure that they would argue the hour cost, I have not clue how the IRS handles something like this.
As I understand it, technically the “thing of value” is the script itself - because it doesn’t have a clearly defined value you can get away with claiming some fairly crazy valuations.
There’s a very similar tax loophole popular with the wealthy where you get a “great deal” on some slightly valuable art, donate it to charity, get it valued by an “expert” you know, who just happens to think it’s worth many times what you paid, then write that off on your taxes. Basically free money.
Do you know if this expert has to have some kind of credentials? Or could John Smith start a non-profit, Jenny Smithy have James Smithens who is an “expert” say the value (of some object) is more than Jenny owns, have Jenny donate this object to John’s non-profit and then tax $0?
(I know it technically can be done, but do you know if there is some threshold were it will be flagged? Writing of more than you own would be a flag and call for an audit but what about something worth $1000?)
If you ask me they should only be able to deduct the capital gains rate from that (which they would have to pay and thus be a wash).
They don’t let you deduct the cost of your own labor ever. The property thing is the loophole (but after further research not a real loophole and they will nail you for it).
Yes, but … if you use your own labor to create a product, and then donate the product, you can deduct the value of the product.
But my point is technically you can deduct the cost of the product. Lets say you knitted an Afghan that you can sell on Etsy and donated it to someone. You can only technically deduct the cost of the yarn, but you’re getting away with doing the market value thing. Full audit would nail you for it but the IRS isn’t staffed enough to call you in for one of those.
Would the IRS have a problem with writing of the value of the yarn or the “market value” of the product?
Other than my tax returns from that year? Not really.