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Programmer time as a tax-deductible In-Kind Donation?

Programmer time as a tax-deductible In-Kind Donation?

  • Hi all!

    Hope you're doing good. The non-profit I work with does a lot of Open Source and free software type work. There are times when we have a need for certain features, etc. to be added. As such, we seek out volunteers.

    Now, if a publisher agrees to print a magazine for you, it's pretty easy to discern what his tax deductibility is... it's the price of the magazine, which includes in that price the time needed to create it.

    What about when it comes to software programmers, though? If I have a guy that normally makes $70 and hour programming, and he agrees to help me for ten hours one day doing what he does (ie., he would normally make $700 in that 10 hours), is it possible for him to claim that as a tax deduction?

    I have to claim it in my budget as an in-kind donation because I'm receiving a product during that time... source code/ program binaries, etc.

    Can someone point me to some IRS specifics?

    Thanks,
    KermitJunior
  • Kermit,

    I have read some of your posts on other topics and would like to suggest that you consider starting a forum on using thin client technology (LTSP) as a more practical way for non profits to use obsolete, incompatible or unreliable older PC's.

    If you are interested I would be happy to assist.

    Thanks,

    Jim

    www.academiccomputingenvironments.com
  • Cheapjim,

    Thanks for the compliment. I may contact the TS people about that in the near future.

    KJ
  • Hi KermitJunior,

    As a tax professional that prepares many tax returns, the IRS states that a person cannot take as a charitable contribution the value of their services (time) donated to a charity. They may however, deduct their mileage to your place of business. This has been brought up in our annual tax update classes and the recurring answer is NO.
    I also work for a non-profit and get this asked many times as well, and I have to claim it as in-kind when reporting to my funders.

    Thanks,
    Mike
  • Mike,

    Thanks for the reply. As a follow up, what if they provide a product for that time? Ie., they write a program they would normally charge 500 dolalrs for, can they contribute it and get a write off.

    So, not their time, but an actual product. Is that a write off for them? There IS a gift of a working product.

    Thanks!
    Kermit
  • Kernit,

    From the IRS website:
    http://www.irs.gov/taxtopics/tc506.html
    (About two thirds down) "Contributions you cannot deduct at all include contributions made to specific individuals, political organizations and candidates, the value of your time or services and the cost of raffles, bingo, or other games of chance."

    As a general rule you can only claim a tax deduction for things that have been paid for. You don't get money from the IRS for donating things, you just don't get taxed on the cost of the things you donate.

    A tax deduction is a way of saying "See this money? Well I didn't really get it, it went to this charity, so I'm not going to pay tax on it."

    With actual property, that is things that cost money to obtain, like clothes, you're saying "see this item, it's worth $x and it went to a nonprofit. Since those $x were *previously* taxed, I want that tax money back."

    With volunteer time such as programming, that money value was never taxed and there's no money that's going to be taxed, so there's no tax deduction to claim.

    In the publisher example, the publisher gets to consider actual costs, such as salary paid, as expenses which get considered before tax is calculated (similar to a deduction on your taxes), but the publisher doesn't get money from the IRS for donating something of value. If the time needed to create the magazine wasn't paid for, the publisher couldn't deduct it.

    Helen

  • So if the non-profit was billed by the programmer for $X amount and they paid it, could he then contribute it back to them and take the deduction? Our group has also had this issue come up and someone suggested this as a work-around to allow them the deduction.
  • Yes, but why bother? You can only deduct the amount you donated, and that's what they paid you...?

    So you get a tax liability by being paid, then you remove it by donating the money.

    Your deduction cannot be more than the donation you make, so it cancels at best.

    In the case of the product, I think you can deduct the cost of the materials, disc, manual, package, but not what the product "might" sell for. You cannot deduct a profit that you might have gotten if you had otherwise sold the product, only your cost.

    You can sell the product for $500 and then donate that money to a NP. It's really all about what is "real" money and play money.... :-)

    There are other ways to get some real "value" from donating to NPs, (as if just the donating was not enough...!), and that is the goodwill/referrals that it can bring. Most NPs have business and community leaders involved and donating to a NP can bring your company to the attention of those trying to foster the NP.
  • So, my time and services are not deductable, but presumably donation of paid for goods is. What about use of paid for goods, such as the use of my vehicle. If I am amortizing fixed business costs such as a car or a computer, then shouldn't it be a deductable expense to give the use of that equipment to a non-profit temporarily? The motivation here is that I have equipment which is sitting around not being used and could be a source of deductions for me and of use to a non-profit. Taking that a step further, if I take 1 month to write a computer program for a NP and use my computer to do that (which I am taking an equipment deduction for in this tax year), couldn't I deduct 1/12 of the amortized value? It is, as Sue pointed out, "already paid for"...
  • Nick,

    I believe that this falls under the IRS' "partial interest" rules and cannot be deducted. See page 6 of IRS Publication 526:

    "Generally, you cannot deduct a charitable contribution . . . of less than
    your entire interest in property. A contribution of the right to use
    property is a contribution of less than your entire interest in that
    property and is not deductible."

    Robert (not a tax advisor -- sounds like you might need one)

    Robert

    Forum Moderator
    Robert L. Weiner Consulting
    Strategic Technology Advisors to Nonprofit and Educational Organizations
    robert [AT] rlweiner [DOT] com
    www.rlweiner.com

  • as rule of thumb you have to get paid first ( income ) to make any deductions off that income..
    Tax code is written to collect taxes, so think of your idea keeping that in mind..
    I an a network guy so I could "donate" 20 hours a week providing "real time security auditing " So thats 20 hours @$50 an hour. So now I would have $1000 a week deduction for running Snort on my desktop.. NOT
    Be great if it was that way, but sadly its not..

    oz
    Ozzie http://www.call4tech.com/np Non Profit Organisation Network Consulting System Design New York http://call4tech.com/itil/