Q:

Subject: question for blog

 

I am a film/video producer and I donated a project I made for a museum (non-profit) exhibition.

I understand that I cannot deduct "services" nor can I currently deduct an "artwork" as such. My point is that

I have created a piece of property (a finished DVD) that has tangible value. It is a professional piece of work

that would normally cost around $8000.00. I am having trouble finding tax law that will enable me to donate these sorts of projects to non-profits though I have heard of examples where this has worked. An Ad agency, for instance, will shoot a few thousand feet of film for a non-profit organization and will then donate the footage to the organization. They are deducting, I suspect, more that just the value of the film stock and processing. Thanks in advance for your advice.

A:

You are very mistaken about the value of the deduction being claimed by ad agencies.  It is a common misconception that other people are getting a better deal than you are.  They are no more able to inflate the value of their donations for tax purposes than you are.

With almost all tax issues, you have to have a cost basis in an item that is being donated.  Obviously, if you purchased an item and then turned around and donated it to a charity, you could deduct what you actually paid for it.  For things that you make yourself, you can only claim the out of pocket costs that you incurred.  The profit that you would have earned under a normal sale of the product cannot be counted as a deduction, unless you want to increase your basis in the item by reporting that profit as income subject to income and self employment tax; which would end up costing you more than twice as much in taxes as the taxes you would save by the higher Schedule A charitable donation deduction.

You really should be working with a tax pro, who will explain to you that Schedule A deductions are only worth about one half the overall tax savings as are Sch. C business deductions.  You would normally be better of running your production costs through your normal business schedule under the premise that the donation is a form of advertising and promotion for your services.  That's how I have always handled my charitable tax and accounting work, and is what ad agencies and other businesses do.  

I am never shy about pointing out the many unfair aspects of the tax law.  On this issue, there is no such problem.  While it may still seem as if you should be able to claim much higher amounts for items you donate, the law as it is does make sense and is fair.

Again, your personal tax pro should be able to show you exactly what the differences would be between Sch A and Sch C deductions.

Good luck.  I hoped this helps you understand the matter.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/15/2006 07:58:00 PM Send this post: