Charitable Contributions
Bernard Fruchtman
clients to "use" for a limited period of time.
In return he receives "usage fees". If he donates the "
use" of one of his illustrations to a charity for their
"use" for a limited period of time can he take a charitable
deduction for the amount of the "usage fee" he would usually
charge a non-charitable organization?
Thank you
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Helen P. OPlanick EA
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
Sure, as long as he includes it in income on his Sch C (or
business entity return) and then he can take the deduction
on Sch A. But you see, that will cost him tax dollars and I
have a gut feeling that he does not want to do that.
So then, no income, no deduction......
Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
1040EZ and 1040A tax prep at www.1040.com/1040pro
Phil Marti
> An artist creates illustrations which he allows various
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
No. He can deduct his out-of-pocket expenses of producing
the illustrations, but nothing else.
Phil Marti
Topeka, KS
Dave Woods, EA
> An artist creates illustrations which he allows various
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
No. The value of time is not deductible.
--
David M. Woods, EA
Boston, MA 02109
Postings here are general information only and not to be
relied upon as advice.
Harlan Lunsford
> An artist creates illustrations which he allows various
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
In short, no.
Remember, taxpayers are allowed deductions against, or in
regard to, income.
Cheer$, Harlan Lunsford, EA in LA
Arthur Kamlet
> An artist creates illustrations which he allows various
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
Ah, English is a wonderful flexible language, right?
Usage fees as a tax deduction?
Let me see if I understand the situation:
An artist rents out his artistic creations for a fee.
Who knows? Perhaps he hopes some rich folks will see his
works and either rent or purchase more of his works? Good
advertising.
So he finds a charitible organization who offers to display
his works and thereby provide him with more good
advertising.
The tax question: How much income should the artist declare
based on receiving "free billboard space" from the local
charity?
What, wrong question? Why?
If you beleive the artist can take a deduction for the
lending of his artistic works to a charity, in which it is
not at all clear the charity has received any benefit, I
would ask the following question:
When the charity files its Form 990 to report its income
including the dollar amount of charitible gifts it received,
how much income should the charity include on its own income
tax form? How will it account for how it disbursed this
income?
Look, the artist is receiving "free" advertising and there
is no charitible deduction. If the work was donated to the
charity there is an argument that, as advertising, the out
of pocket expenses of the materials and supplies which went
into the artisitic creation could be deductible. But the
rental of this artistic work? I would not even raise the
issue, lest the issue of how much income to recognize for
the free advertising provided to the artist be broached.
__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
Arthur L. Rubin
> An artist creates illustrations which he allows various
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
Only if he claims the "usage fee" as income, and structures
the transaction appropriately.
And I can think of a reason for doing it this way, although
the artist's income taxes would probably be higher. It
increases schedule C income which may increase Social
Security credits (at the expense of higher SE taxes). It
WILL increase schedule C income, which would make it less
likely for the IRS to claim that it's a hobby rather than a
business, and make it easier to apply for a business loan.
D. Stussy
> An artist creates illustrations which he allows various
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
No. His deduction is limited by the amount of income he
recognizes from the transaction.
He's not donating a tangible asset - but the right to
receive income.
Christopher Green
> An artist creates illustrations which he allows various
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
No.
His deduction is limited to his actual cost of materials (in
the case of leased artwork, maybe packing and shipping,
hangers, lighting for the installation, and the like).
Anything more would be double-dipping. He already benefits
to the extent of not paying taxes on the income foregone.
--
Chris Green
William P. Brown
> An artist creates illustrations which he allows various
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
No. On the other hand, he does not report as income the
usage fee he did not receive.
Regards,
Bill
~~~~
Associate Professor of Accounting
Longwood University
Department of Accounting, Economics & Finance
http://www.longwood.edu/staff/wpbrown/
Opinions expressed by me are mine, not my employer's.
Gene E. Utterback, EA
> An artist creates illustrations which he allows various
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
No.
Gene E. Utterback, EA
Bernard Fruchtman
> An artist creates illustrations which he allows various
> clients to "use" for a limited period of time.
>
> In return he receives "usage fees". If he donates the "
> use" of one of his illustrations to a charity for their
> "use" for a limited period of time can he take a charitable
> deduction for the amount of the "usage fee" he would usually
> charge a non-charitable organization?
Thanks to all who responded.
Although the reasons varied everyone said no deduction.
would it make any difference if i clarified the facts as
follows: the artists regular business and entire income (low
six figures) results from the creation of illustrations
which he allows ad agencies and others to use in their
advertising and promotions for a limited period of time for
a "usage fee". In the matter at hand he is allowing a
charitable organization to use one of his illustrations in
one of the charity's advertising campaigns. The artist is
not receiving any benefit from his "donation"
I do not think that giving up the income affects matters
since a person gives up income when he donates appreciated
stock. He gives up the gain and yet he gets a charitable
deduction for the full value of the stock
Dick Adams
> Although the reasons varied everyone said no deduction.
> would it make any difference if i clarified the facts as
> follows: the artists regular business and entire income (low
> six figures) results from the creation of illustrations
> which he allows ad agencies and others to use in their
> advertising and promotions for a limited period of time for
> a "usage fee". In the matter at hand he is allowing a
> charitable organization to use one of his illustrations in
> one of the charity's advertising campaigns. The artist is
> not receiving any benefit from his "donation"
Let's say the "usage fee" is $5,000. So the charity pays
him $5,000 and he donates $5,000 to the charity. Now he
has $5,000 in ordinary income offset by a $5,000 donation.
That's all he is doing.
> I do not think that giving up the income affects matters
> since a person gives up income when he donates appreciated
> stock. He gives up the gain and yet he gets a charitable
> deduction for the full value of the stock
There is a significant distinction to be noted here. The
income a person gives up when donating stock is capital
gains income, not ordinary income. If you could get a tax
deduction for foregoing ordinary income, everybody would be
doing just enough volunteer work to zero out their tax
obligations and nobody would pay any taxes.
Seth Breidbart
> When the charity files its Form 990 to report its income
> including the dollar amount of charitible gifts it received,
> how much income should the charity include on its own income
> tax form? How will it account for how it disbursed this
> income?
Suppose instead, the artist had *given* a painting to the
charity. Based on sales of comparable paintings, it had a
market value of $25K. Wouldn't the charity have to report
that on its Form 990? However, the artist still wouldn't get
a deduction (except for the cost of materials to produce
it).
> Look, the artist is receiving "free" advertising and there
> is no charitible deduction. If the work was donated to the
> charity there is an argument that, as advertising, the out
> of pocket expenses of the materials and supplies which went
> into the artisitic creation could be deductible.
That has nothing to do with "advertising".
> But the
> rental of this artistic work? I would not even raise the
> issue, lest the issue of how much income to recognize for
> the free advertising provided to the artist be broached.
$0 is how much to recognize. If the free advertising
resulted in increased sales (or prices), that income would
be recognized.
Seth
Dave Woods, EA
> "Bernard Fruchtman" <tax...@earthlink.net> wrote:
>> An artist creates illustrations which he allows various
>> clients to "use" for a limited period of time.
>>
>> In return he receives "usage fees". If he donates the "
>> use" of one of his illustrations to a charity for their
>> "use" for a limited period of time can he take a charitable
>> deduction for the amount of the "usage fee" he would usually
>> charge a non-charitable organization?
> Thanks to all who responded.
>
> Although the reasons varied everyone said no deduction.
> would it make any difference if i clarified the facts as
> follows: the artists regular business and entire income (low
> six figures) results from the creation of illustrations
> which he allows ad agencies and others to use in their
> advertising and promotions for a limited period of time for
> a "usage fee". In the matter at hand he is allowing a
> charitable organization to use one of his illustrations in
> one of the charity's advertising campaigns. The artist is
> not receiving any benefit from his "donation"
Let me clarify the answer. NO DEDUCTION.
> I do not think that giving up the income affects matters
> since a person gives up income when he donates appreciated
> stock. He gives up the gain and yet he gets a charitable
> deduction for the full value of the stock
Giving up unrealized gain is not giving up income.
--
David M. Woods, EA
Boston, MA 02109
Postings here are general information only and not to be
relied upon as advice.
<< ------------------------------------------------->>
Phil Marti
> Although the reasons varied everyone said no deduction.
> would it make any difference if i clarified the facts as
> follows: the artists regular business and entire income (low
> six figures) results from the creation of illustrations
> which he allows ad agencies and others to use in their
> advertising and promotions for a limited period of time for
> a "usage fee". In the matter at hand he is allowing a
> charitable organization to use one of his illustrations in
> one of the charity's advertising campaigns. The artist is
> not receiving any benefit from his "donation"
Nope--the answer is still the same.
Phil Marti
Topeka, KS
Arthur Kamlet
>> An artist creates illustrations which he allows various
>> clients to "use" for a limited period of time.
>>
>> In return he receives "usage fees". If he donates the "
>> use" of one of his illustrations to a charity for their
>> "use" for a limited period of time can he take a charitable
>> deduction for the amount of the "usage fee" he would usually
>> charge a non-charitable organization?
> Thanks to all who responded.
>
> Although the reasons varied everyone said no deduction.
> would it make any difference if i clarified the facts as
> follows: the artists regular business and entire income (low
> six figures) results from the creation of illustrations
> which he allows ad agencies and others to use in their
> advertising and promotions for a limited period of time for
> a "usage fee". In the matter at hand he is allowing a
> charitable organization to use one of his illustrations in
> one of the charity's advertising campaigns. The artist is
> not receiving any benefit from his "donation"
>
> I do not think that giving up the income affects matters
> since a person gives up income when he donates appreciated
> stock. He gives up the gain and yet he gets a charitable
> deduction for the full value of the stock
But this is the artist's own artistic creation. So no
deduction, other than out of pocket costs for materials,
etc.
Here's a similar example:
World famous artist creates a painting and has it appraised
by the world's most expert art appraisers as having a fair
market value of $1 million.
He donates this to a qualified charitible organization.
His deduction is cost of paint, canvas & supplies. Period.
__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
<< ------------------------------------------------->>
Seth Breidbart
> World famous artist creates a painting and has it appraised
> by the world's most expert art appraisers as having a fair
> market value of $1 million.
>
> He donates this to a qualified charitible organization.
>
> His deduction is cost of paint, canvas & supplies. Period.
That holds even when the charity turns around and sells the
painting the next day for $1 million (thereby proving the
appraisers were actually correct).
Now consider:
Suppose he gave a painting to a friend for his birthday
(before he became famous, say, so the value then was under
$10K). Now the friend donates the (now) $1 million painting
to charity. Deduction for its actual value, right?
Are there limits on how closely related the friend can be?
Suppose it's his wife? No gift tax problems, and the
donation wasn't by the artist.
Seth
Herb Smith
> Arthur Kamlet <ArtK...@REMOVE.com> wrote:
>> World famous artist creates a painting and has it appraised
>> by the world's most expert art appraisers as having a fair
>> market value of $1 million.
>>
>> He donates this to a qualified charitible organization.
>>
>> His deduction is cost of paint, canvas & supplies. Period.
> That holds even when the charity turns around and sells the
> painting the next day for $1 million (thereby proving the
> appraisers were actually correct).
>
> Now consider:
>
> Suppose he gave a painting to a friend for his birthday
> (before he became famous, say, so the value then was under
> $10K).
WRONG. The current FMV is irrelevant for a gift to this
friend. The friend "gets" the same "cost basis" as the
artist - which is limited to paint and materials.
> Now the friend donates the (now) $1 million painting
> to charity. Deduction for its actual value, right?
Not necessarily. The friend might be able to claim the FMV
at the time of donation, but only if the painting is used by
the charity in a "related" manner. If the charity is an
educational institution and the painting is hung in the
library for educational purposes, etc. that could be a
related use. If the charity turns around and sells the
painting to raise money for its primary purpose, the
donation value is limited to the donor'e "cost basis" -
which may be very low.
> Are there limits on how closely related the friend can be?
What does it matter? It would not be a charity deduction to
the artist. He gave the painting away, remember? See above
donation rules.
> Suppose it's his wife? No gift tax problems, and the
> donation wasn't by the artist.
Husband and wife are a single tax entity if they file joint.
A donation by one is the same as a donation by the other -
deduction limited to out of pocket expenses only.
Seth Breidbart
> se...@panix.com (Seth Breidbart) wrote:
>> Suppose he gave a painting to a friend for his birthday
>> (before he became famous, say, so the value then was under
>> $10K).
> WRONG. The current FMV is irrelevant for a gift to this
> friend. The friend "gets" the same "cost basis" as the
> artist - which is limited to paint and materials.
Is that really the case? There's no gift tax if a famous
artist gives a valuable painting (that he painted) to a
friend?
>> Now the friend donates the (now) $1 million painting
>> to charity. Deduction for its actual value, right?
> Not necessarily. The friend might be able to claim the FMV
> at the time of donation, but only if the painting is used by
> the charity in a "related" manner. If the charity is an
> educational institution and the painting is hung in the
> library for educational purposes, etc. that could be a
> related use. If the charity turns around and sells the
> painting to raise money for its primary purpose, the
> donation value is limited to the donor'e "cost basis" -
> which may be very low.
Why? If I buy stock for $500, it gains value to $5,000 and
I donate it to a charity which immediately sells it for
$5,000, then I get a deduction for a $5,000 donation. In
that case, my cost basis doesn't limit the deduction.
>> Suppose it's his wife? No gift tax problems, and the
>> donation wasn't by the artist.
> Husband and wife are a single tax entity if they file joint.
> A donation by one is the same as a donation by the other -
> deduction limited to out of pocket expenses only.
So for the year the wife donates the painting, they file
separately.
Seth
Stuart O. Bronstein
>>> Suppose he gave a painting to a friend for his birthday
>>> (before he became famous, say, so the value then was under
>>> $10K).
>> WRONG. The current FMV is irrelevant for a gift to this
>> friend. The friend "gets" the same "cost basis" as the
>> artist - which is limited to paint and materials.
> Is that really the case? There's no gift tax if a famous
> artist gives a valuable painting (that he painted) to a
> friend?
Not at all. The gift tax is based on the actual value at
the time of transfer. It has nothing to do with basis.
On the other hand, if the donor's basis for a large gift is
minimal, the donee's basis will be the donor's plus the
amount of gift tax paid (under section 1015 it looks like
merely incurring the tax is not enough) for that gift.
Stu
Herb Smith
> Herb Smith <smit...@aol.com> wrote:
>> se...@panix.com (Seth Breidbart) wrote:
>>> Suppose he gave a painting to a friend for his birthday
>>> (before he became famous, say, so the value then was under
>>> $10K).
>> WRONG. The current FMV is irrelevant for a gift to this
>> friend. The friend "gets" the same "cost basis" as the
>> artist - which is limited to paint and materials.
> Is that really the case? There's no gift tax if a famous
> artist gives a valuable painting (that he painted) to a
> friend?
Gift tax would only be an issue if the cost of paint and
materials exceeded $11,000 (for one painting or many given
to this friend in the year). Your time, effort, and
reputation have NO VALUE in self-created works donated or
given to someone else. If you bought the painting or other
work of art, and then gave it away you have a different
situation.
>>> Now the friend donates the (now) $1 million painting
>>> to charity. Deduction for its actual value, right?
>> Not necessarily. The friend might be able to claim the FMV
>> at the time of donation, but only if the painting is used by
>> the charity in a "related" manner. If the charity is an
>> educational institution and the painting is hung in the
>> library for educational purposes, etc. that could be a
>> related use. If the charity turns around and sells the
>> painting to raise money for its primary purpose, the
>> donation value is limited to the donor'e "cost basis" -
>> which may be very low.
> Why? If I buy stock for $500, it gains value to $5,000 and
> I donate it to a charity which immediately sells it for
> $5,000, then I get a deduction for a $5,000 donation. In
> that case, my cost basis doesn't limit the deduction.
Because that is the law regarding appreciated assets. See
IRS Pub 526. Paintings or other works of art are not valued
by a firm marketplace, such as the NYSE. Selling the stock
for current market price is considered a "related use".
Selling a tangible non-monetary asset may or may not be
related to the goals and function of the charity. You are
trying to compare apples and oranges. If you want to go that
route, sell the painting at FMV, claim the income, then
donate the money to the charity.
>>> Suppose it's his wife? No gift tax problems, and the
>>> donation wasn't by the artist.
>> Husband and wife are a single tax entity if they file joint.
>> A donation by one is the same as a donation by the other -
>> deduction limited to out of pocket expenses only.
> So for the year the wife donates the painting, they file
> separately.
I think you are "reaching". They are still a marital
community (i.e. related).
Besides, what does any of this have to do with the tax
return of the "famous artist"? He gave the painting away, so
he is out of the loop. Does he expect a kickback of the
taxes saved from the giftee? Then it would not have been a
valid gift, if there were strings attached. That would be a
sham transaction in the IRS's eyes.