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Also, does the non-profit organization need to provide me a reciept specefying the dollar amount? Do they also need to file any kind of IRS forms reporting this transaction?
What is the limit I can donate to one company? What is the limit of total donations annually? Someone told me 10% annually and someone else told me 20%!
Without sound like "kvetching," this is how it usually goes: some young hotdog wants to pump his portfolio, and suggests that you do some work for the non-profit that he's designing for (and, oftentimes, he's got his eye on a lovely young lady involved). Naturally, he needs your talent. If not, he'd do it all himself and get even more accolades.
Well, you can only deduct actual expenses. In most of my years as a photographer, that meant that I could deduct the cost of film and processing. Now that I sit in front of a monitor all day, it's pretty hard to figure out where the hard expenses are. In fact, it's damned near impossible, and I won't even try: the IRS is not an agency you want to argue with.
What's even funnier is the reply I'd give to those young hotdogs who wanted me to help them build their portfolios.
They'd say, "hey, dude, it's tax deductible."
"Well", I'd say, "that's just fine. Give me one dollar."
So, he'd give me $1. Then I'd hand him a quarter, and say, "there's the value of a tax deduction. Fair trade?"
A tax deduction is not the same as a tax credit. The amount of money you get back from a deduction depends upon your tax rate: you deduct your hard expenses off the top of your income; the balance of what you're paid is taxed at whatever rate you qualify for. So, let's say your company is in the 25% tax bracket. Your charity expenses for that job cost you $250. $250 of that comes off your company's income, and the rest--if any-- is taxable.
So, let's say the hotdog has $500 for you. You spend $250 in actual expenses. At a 25% tax rate, you're going to pay $75 in taxes on that job, leaving you with a whopping $175 when the tax man is done with you. If the hotdog has nothing more than the actual cost of materials, then you're working for free.
A direct credit comes right off your taxes due, and there aren't too many-if any-- tax credits out there for creatives doing charity work.
I really wish that art/design/creative schools would have at least just a one-semester course devoted to business. If nothing else, it would dramatically reduce the number of failures of start-ups, not to mention the number of graduates who believe that a tax deduction is free money.
"Hey, dude. Can I buy that $1 bill for 25 cents?"
At the end of the day I'm with oilman. If you want to do work for "not-for-profits" then it is better to do a "I'll scratch your back, if you'll scratch mine" type deal.
A mention in a newsletter, a recommendation on a site, an exclusive "favoritism" can be worth anywhere from nothing to a small fortune depending upon who you do the "favor" for.
Actual costs incurred tend to be minimal in this business, so it is usually better to trade with not-for-profits in pure goodwill :)
I have one client that has owed me about $15,000 for two years. At the end of last year I had decided that I would just write that off as a loss.
After I had already prepared my taxes, but before I sent them in, I mentioned this to some of my visiting family members. My accountant sister and lawyer brother just shook their heads. After about an hour of explaining, they finally got through to me. If I didn't spend any money, then I am not out any money. I therefore can't claim a loss.
The IRS apparently doesn't put any value in time. And that explains a lot about the entire process of filing business taxes.