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Donations and the IRS

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wwlewis

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How do turners/artists handle donations to charities such as bowls for a silent auction or a hollow form to be a raffle prize?

My accountant advised the donation value is the raw value of materials, not the auction price or the retail price of the piece and labor is "donated." Since a lot of the materials are "found," it doesn't seem to be much of a donation from a tax standpoint. This may be strictly a USA issue.

What do others do?
 
For some reason, the Infrenal Revenue Service does not consider labor to be a worthy tax deduction. Materials only,which means not worth the paper work. Really sucks, but I still donate. Empty Bowls is coming up and I will donate a bunch with the rest of my club.

robo hippy
 
As far as I can tell, your accountant is right. The IRS even goes an extra step and ensures that if you give the piece to someone who then donates it within a year, it is still the material cost that they can deduct.
 
dang. And I was going to put down $8000 for my donations to Wag N Wiskers rescue organization. I'm pretty sure that's what the 5 bowls, 2 boxes, a hand mirror, and several platters were worth.
 
First off, I'm very stupid about IRS laws. But here is what I've been reading online http://www.irs.gov/publications/p561/ar02.html

From my understanding, an item has to be sold in order to have a value. Let's say you made a salad bowl on the lathe and there is a similar salad bowl on sale in a retail store, then the deduction (or is it a credit, I don't know, check with a CPA) will be, according to IRS publication, far more less than the cost of the item being sold at a retail store.

Anyhow, be careful when you state these kind of large number...In California the Franchise Tax Board CAN assume (yeah, they assume) your profits, based on, say a certificate you earned for a profession. Sounds fishy to me, if you want my opinion, but, like I said, I'm stupid about the laws.
 
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I found something in a publication of IRS that may meet woodturning art criteria. Here is a quotation from the publication.

Paintings, Antiques, and Other Objects of Art

Your deduction for contributions of paintings, antiques, and other objects of art, should be supported by a written appraisal from a qualified and reputable source, unless the deduction is $5,000 or less. Examples of information that should be included in appraisals of art objects—paintings in particular—are found later under Qualified Appraisal.

Art valued at $20,000 or more. If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the signed appraisal to your return. For individual objects valued at $20,000 or more, a photograph of a size and quality fully showing the object, preferably an 8 x 10 inch color photograph or a color transparency no smaller than 4 x 5 inches, must be provided upon request.
Art valued at $50,000 or more. If you donate an item of art that has been appraised at $50,000 or more, you can request a Statement of Value for that item from the IRS. You must request the statement before filing the tax return that reports the donation. Your request must include the following.
A copy of a qualified appraisal of the item. See Qualified Appraisal, later.

A $2,500 check or money order payable to the Internal Revenue Service for the user fee that applies to your request regarding one, two, or three items of art. Add $250 for each item in excess of three.

A completed Form 8283, Section B.

The location of the IRS territory that has examination responsibility for your return.

If your request lacks essential information, you will be notified and given 30 days to provide the missing information.
Send your request to:
Internal Revenue Service
Attention: Art Appraisal (C:AP:ART)
P.O. Box 27720
McPherson Station
Washington, DC 20038

Refunds. You can withdraw your request for a Statement of Value at any time before it is issued. However, the IRS will not refund the user fee if you do.
If the IRS declines to issue a Statement of Value in the interest of efficient tax administration, the IRS will refund the user fee.
Authenticity. The authenticity of the donated art must be determined by the appraiser.
Physical condition. Important items in the valuation of antiques and art are physical condition and extent of restoration. These have a significant effect on the value and must be fully reported in an appraisal. An antique in damaged condition, or lacking the “original brasses,†may be worth much less than a similar piece in excellent condition.
Art appraisers. More weight will usually be given to an appraisal prepared by an individual specializing in the kind and price range of the art being appraised. Certain art dealers or appraisers specialize, for example, in old masters, modern art, bronze sculpture, etc. Their opinions on the authenticity and desirability of such art would usually be given more weight than the opinions of more generalized art dealers or appraisers. They can report more recent comparable sales to support their opinion.
To identify and locate experts on unique, specialized items or collections, you may wish to use the current Official Museum Directory of the American Association of Museums. It lists museums both by state and by category.
To help you locate a qualified appraiser for your donation, you may wish to ask an art historian at a nearby college or the director or curator of a local museum. The Yellow Pages often list specialized art and antique dealers, auctioneers, and art appraisers. You may be able to find a qualified appraiser on the Internet. You may also contact associations of dealers for guidance.
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Jake Gevorgian said:
Hi Nick, it's quite interesting. What if the donation is made by the spouse of the artist? Does it change the rule of the game?
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There are some rules regarding giving the piece to someone who then donates it, but they have to hold the piece for at least a year. Then there is a "relevant use" clause which could torpedo that as well. Congress really went out of its way to prevent artists from getting tax deductions back in the 60s.
 
That's why you need to be creative. I've written off tools before because I used them at least once for my work and my work didn't have that tool. I wish I had known the rule when I bought my lathe because I used it a lot to make pieces for different jobs the year I bought it.
Still trying to figure out how to write off toothpaste and tooth brushes as preventive maintenance. lol
 
Brian McInturff said:
That's why you need to be creative. I've written off tools before because I used them at least once for my work and my work didn't have that tool. I wish I had known the rule when I bought my lathe because I used it a lot to make pieces for different jobs the year I bought it.
Still trying to figure out how to write off toothpaste and tooth brushes as preventive maintenance. lol
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Shop supplies. Tools can get written off when purchased, lathes, capital expenses, can be either amortized (depreciated) or written off in entirety as a section 179 small business expense (Up to a certain amount). But please listen to the accountant, they are your lawyer for these types of situations. If they aren't convinced and write it off based on your word, find another accountant. They are at risk as much as you are and the amount of write off isn't worth years of audits.
 
wwlewis said:
How do turners/artists handle donations to charities such as bowls for a silent auction or a hollow form to be a raffle prize?

My accountant advised the donation value is the raw value of materials, not the auction price or the retail price of the piece and labor is "donated." Since a lot of the materials are "found," it doesn't seem to be much of a donation from a tax standpoint. This may be strictly a USA issue.

What do others do?
Click to expand...

Whatever I make to donate to Empty Bowls or other events is to benefit the charity and not to benefit me.

If someone does volunteer work for a charity, it is to help the charity and not the volunteer beyond the satisfaction of helping a worthwhile cause. The volunteer can claim certain out of pocket expenses, but can't claim that their time is worth some particular amount.

See Publication 526 for detailed information on charitable contributions.
 
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Congress went to considerable effort to prevent folks from getting a tax deduction for their efforts on behalf of a charity as opposed to getting a deduction from for donating something you bought.

This includes the artistic process used on behalf of a charity to create something for an auction / sale.

Creative accounting to get around this is asking for trouble.
 
I probably shouldn't have used the term "creative" in my reply. What I should have stated is I actually read the tax code. I could actually write off my pool maint and supplies since my wife is permanently disabled and has a doctors note stating aquatic exercise. Taxes are easy IF you read all the tax codes. And now with some of the tax software it has become easier.
 
We may not like it, but the IRS sort of restricts tax deductions to income you have realized.
Giving time is not tax deductible whether it is spent working for the charity or spent creating a gift to the charity.
You realize no income from volunteer time.


you make a valuable gift. You have volunteer time and material bought with income. Since you owe taxes on the money spent on materials you can deduct it. You don't owe taxes on the volunteer labor so you can't deduct it.

If you buy an art work and donate it you spent taxable dollars in the purchase and thus the deductions allowed.


Al
 
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I'm wondering if anyone has worked a deal out with some of the Charities where the "buyer" writes the check to the artist and the artist endorses it over to the Charity. At which time the artist would claim the proceeds as a monetary contribution. I don't do woodturning for charities but if I did high dollar, many hours to complete projects like some of the segmented items I've seen, then I think I'd at least look into it.
 
Brian McInturff said:
I'm wondering if anyone has worked a deal out with some of the Charities where the "buyer" writes the check to the artist and the artist endorses it over to the Charity. At which time the artist would claim the proceeds as a monetary contribution. I don't do woodturning for charities but if I did high dollar, many hours to complete projects like some of the segmented items I've seen, then I think I'd at least look into it.
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Brian,
That is selling a turning for income. Then giving that income to a charity. While it is allowed and and clearly a gift of income. The end result is the same as giving the turning without ever having held the money.

Al
 
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Are any of you professional turners with a body of work that that could be referenced as fair market value? I can't see how the IRS could object if you can show sales comparable to the gift.
 
It's not really the IRS's call. Congress changed the law on this. See this discussion:

In 1969, however, this incentive was virtually eliminated as a result of legislation passed partially in reaction to President Nixon's large federal tax deduction for the donation of his vice presidential papers. Since the enactment of the Tax Reform Act of 1969 an artist can no longer deduct the fair market value of his own work upon its donation to a museum or other charitable organization. He is only permitted to deduct what amounts to his material costs.
 
Brian McInturff said:
I'm wondering if anyone has worked a deal out with some of the Charities where the "buyer" writes the check to the artist and the artist endorses it over to the Charity. At which time the artist would claim the proceeds as a monetary contribution. I don't do woodturning for charities but if I did high dollar, many hours to complete projects like some of the segmented items I've seen, then I think I'd at least look into it.
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There is a movement to arrange a situation where the charity and the artist split the sale of artistic donations, but I am not sure how developed it is.
 
There have been bills introduced in Congress to modify this and let the artist get a decent deduction from a gift of his/her art, and it's going to take an act of Congress to change it, but I gather they haven't gotten very far along
 
So when is a donation really a donation?

When the taxpayers don't have to reimburse or forgive any portion to the "donor".

Always wondered about our PBS beggars speaking out of both sides of their mouth. Government subsidy was downplayed until they started in reminding you that you could get half of the "donation" as a direct state tax credit and a deduction equal to the WHOLE AMOUNT from the feds. Made a hundred into 46 bucks actual. Never bothered to look, but that has to be illegal. I was always too lazy to bother with declaring my hundred.

When the music camp people gave you a couple of concert tickets for the same amount, they always used the word "complimentary". Maybe that means something with the current state of taxes.
 
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For items donated to an auction under the $5000 limit stated above (which most turnings are), wouldn't the amount of the auction selling price establish the value of the piece?
 
Didn't pay tax on the labor, so no deduction

Hi,

your accountant is correct that the labor portion is not deductible as a $$ donation. The logic here is that you did not pay income tax based on payment for labor to make the item. e.g. if you sold the item for $100 and materials cost $20, you would include the $80 profit in your taxable income. When giving the donation, you do not get taxed on the profit so do not deduct the gift.


Using your spouse would make no difference on a joint return.

Keep ginving for the worthy cause!
 
So I guess the key is to donate stuff made of Snakewood LOL (just kidding)
 
I guess their mentality is this:
While you spent your time to find, drive up, cut, pick up, drive back, prepare, turn and finish a piece that is priceless, you could have done it all and sell it, paying sales tax, then income tax (and some others, I don't know of...)

But I hope we still make and donate, knowing that it's priceless and it's given away for a good cause. This sets the red line.
 
Not sure if this has been covered, didn't read all the way through the last post. What I do is have my business sell the item to my wife and my wife then donates as an individual.
 
Steve Sloan said:
Not sure if this has been covered, didn't read all the way through the last post. What I do is have my business sell the item to my wife and my wife then donates as an individual.
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In that case, she pays you including sales tax. You pay the sales tax, and income tax. She get's a write off for the amount of the sale.
I'm not too sure it's worth it.

Also, look at the other scenario in which the auction winner pays the artist. In that case, the person who buys it doesn't get any write off because they are simply buying a turning. If it is a deep pockets auction, say at a large symposium, I don't think the person buying it for their own use (as opposed to resale), would pay as much since they don't get the write off.

I do a number of very large bowls for Empty Bowls that some are used in their auction. While the bowls would normally sell for over a couple hundred bucks, they get about $100-$150. No, I don't get a write off as it is found wood. I do write off as other expenses the tools, lathe etc., in the course of using them for business. The payoff is that this year, I helped (in some small part) raise >$153,000 for the North Texas Food Bank. And it would have been far more difficult for me to have written a check equivalent to the bowls, to the organization. Also helps pay off karmic debt.
 
Every outfit hits up makers to donate work. When I realised that the work was selling for peanuts I stopped. I now give a $200 gift cert redeemable at my wifes gallery. Good on my work only. I dont care what they paid for it. When they pick out a piece of my work its $200 off. Not sure where it gets written off but i sure think it is. I could be wrong but I thought in the last couple years congress issued some new guidlines on donated art write offs by the maker that says it can be the fair market value of the work.
 
I did a little search and here is what I found.

"While non artists are entitled to a Fair Market Tax Deduction for the artwork donated to charities or museums, artists can only claim a income tax reduction for the cost of their materials, not for their labour, or for the established recorded value of their work"

So ask yourself, are you an artist?
 
Brian McInturff said:
I did a little search and here is what I found.

"While non artists are entitled to a Fair Market Tax Deduction for the artwork donated to charities or museums, artists can only claim a income tax reduction for the cost of their materials, not for their labour, or for the established recorded value of their work"

So ask yourself, are you an artist?
Click to expand...

Where did you find this? It's odd something about US tax rules would spell "labor" with a "u".
 
Brian McInturff said:
I did a little search and here is what I found.

"While non artists are entitled to a Fair Market Tax Deduction for the artwork donated to charities or museums, artists can only claim a income tax reduction for the cost of their materials, not for their labour, or for the established recorded value of their work"

So ask yourself, are you an artist?
Click to expand...

Non artist refers to someone who bought the artwork and fair market value refers to what the non-artist paid for the artwork. If they paid an inflated price in an auction frenzy, they are only entitled to claim a reasonable value. The onus probandi is on the person making the claim and not the IRS. An example of proof is showing the selling price of comparable works from the same artist to other customers.

I donate turnings to Empty Bowls because I want to help them raise money for their very worthwhile cause and not because I am looking for another venue to sell my turnings.

When somebody donates money or goods to a charity, it is not a money making venture -- they are giving away something that they have earned and paid taxes on. A tax deduction only offsets a small portion of that. The real gain for the giver is the satisfaction of helping.

Some of the ideas that I read in this thread seem to be more self-serving than altruistic.
 
It was on a blog summarizing some of the codes. Like I said, "I did a quick search".

In this day and age where the government gets almost half of my earnings then yes, I look for ways to recoup where I can. Let's be honest, do you claim the income you make on any items you sale i.e, tools, wood, turnings, etc and pay the tax on said items? No difference.
 
Understand they're going to do something special just for turnings. They call it the "Buffer Rule." ;)

I'm with you, Bill. I give to the organization, I don't sell to them, or, alternatively, to the government for a credit or write-off.
 
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