flotsam - 11:37 pm on Nov 13, 2004 (gmt 0)

Sorry -- I said individual when I should have said sole proprietor. (and sorry for the thread creep...)

The rules are slightly different for the sole proprietor and other business types.

The IRS regs on "Schedule C, Profit or Loss from Business, Sole Proprietors" says you cannot deduct charitable contributions from the business, period. (Part V, page C-7, 2004 instructions for Schedule C.) (Cash and property donations would be deductible on the personal part of the tax return.)

For other business entities, charitable contributions are deductible at the lesser of depreciated cost or market value. (Miscellaneous Expenses, page 54, 2003 IRS Pub 535, Business Expenses.)

From a FAQ on deductibility of this sort of thing:

Q: Am I correct that the donation of labor/time, i.e. landscape companies that send professional workers to do a specific task such as installing irrigation pipes, cannot be counted as a tax deductible contribution, but that the donation of the pipe can be counted? A: The IRS applies the following principle to deductibility of services: If an activity garners no income, then it is not subject to income tax. Therefore, it (the "value" of the activity should not be deducted from income tax as a charitable deduction -- it had no income "value" to the donor, since no income was received from it. Cash is deductible because cash is subject to tax. Materials on which a fair market value can be established are usually deductible because taxable income is typically used to purchase those materials. Labor is not deductible as a charitable contribution because no income is related to the activity.

A corporation will likely be able to get a deduction on its employees' time, since their wages are a routine and generally unquestioned deduction, whether the employees sit in the coffee room or provide some service being donated -- but that is just their actual wages. Sorry to say, lost income is not considered a cost by the IRS.)

I'm not saying it makes sense. I'm just saying that's what the IRS says.

Bill